What percentage of your portfolio should be crypto?
The big question
Issue #21: May 3, 2021 - Reading time (4 min)
The discussion in today’s Zoom call was: How much of your wealth should you invest in digital currency?
Have you taken time to check what percentage of your wealth is in crypto? If no, please do.
The big question is: Traditionally, a diversified investment portfolio has been thought of as an age-appropriate mix of stock and bond investments. But what about cryptocurrencies?
I have always believed in a balanced portfolio, so after my terrible Bitcoin story in 2017, I concluded and invested only 5% of my investment in Cryptocurrencies.
Rule number 1 in cryptocurrency investing is: Start Small. As small as possible. Then mark up your position as you gain more experience.
Just like fractional shares, you can buy fractional crypto that does not require you to buy 1 whole Ethereum, but you can buy 0.003 worth of ETH.
When you’re patient enough to start small, you get used to the process of transferring, trading and safely storing cryptos. Once you’re comfortable, then you can start to level up to bigger sizes. Don’t rush bro.
There’s something people don’t tell you about the crypto world. Transactions are mostly one way and carefulness is required at all points. Especially when it’s time for big money transactions.
I tell you most solemnly - the process of buying, moving and storing cryptos is entirely different from traditional online banking or investing.
In the world of crypto, if you make a mistake you can lose your money in an instant. YES. It’s gone. If you send bitcoin to the wrong address, it’s gone. That’s it. There’s no way to reverse or undo the transaction.
Another thing they don’t tell you is: There are very few, if any, “I forgot my password” options in the crypto world.
So it’s critical to familiarise yourself with the mechanics of buying crypto and moving it around first with a relatively small sum, before moving on to larger dollar amounts.
Now… What’s the way out?
Be super conservative. Our definition of conservative is as relative as our varying risk appetite.
But then, you should be conservative to the point that - if you wake up the next morning and your crypto portfolio is worthless, you’d be just fine.
The table below represents your level of knowledge and experience vs your maximum percentage of your portfolio to be invested in cryptos.
5% is too small, right? That’s much opinionated, you can do more than 5% if you’ve got the balls.
What Coin should you go for?
If you are looking to become an active crypto investor, I think you should hold anywhere from 30% to 70% of your crypto portfolio in the major coins. Talking of Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB), XRP (XRP), Tether (USDT) other crypto assets taking up the rest.
The thing is: Take a look at your crypto portfolio and ask yourself if you could stomach a 50% decline tomorrow without spinning into a panic. If the answer is no, then you need to do something about it.
The real challenge in holding cryptocurrency is to resist the temptation to sell to cut losses.