Investment Keystones - How To Maximize Your Odds
Banking On A Single Idea
Over time many investors tend to become maximalists without realizing it. Observing their portfolios would reveal a level of heavy concentration in a single asset, or ecosystem. This can be a fantastic approach… but only if it’s correct. If something happens to your beloved project or ecosystem, you can kiss your portfolio goodbye. Years of accumulation, frugality, and discipline go down the drain. We have seen this unfold many times before, and we are likely to see it again.
So many investors chose to allocate their entire life savings to projects like Terra Luna, or networks like Celsius. Then there are the investors who chose to hold their entire portfolios on FTX. Sure, you may argue that you are not that foolish. However, let me remind you that before the failure of these particular projects, they all had an “impeccable” reputation, and were considered to be exceptionally trustworthy and reputable.
Failure can come in many forms. There does not necessarily have to be fraud or incompetence. Failure can come as a result of an outside force or influence. Take BlockFi for example. Had BlockFi not had such a heavy exposure (or none at all) to FTX, its possible operations could have continued. Learning to leverage multiple exposures in the smartest way possible creates a safety net, even if you choose to have the majority of your portfolio allocated to a single project, coin, or entity.
Decentralization & Diversification Are Family
When you think about it, decentralization is a form of diversification. It’s a type of “insurance”, ensuring a single entity or persons don’t have the ability and power to compromise or harm the network. Similarly, astute investors never invest in a single idea, stock, or Cryptocurrency. They might have a heavy bet on one particular investment. However, they allocate additional capital to investments outside their primary exposure. I am not necessarily opposed to the idea of a majority holding or exposure, as long as there is a “backup” allocation to other promising projects or sectors.
As I have mentioned recently, my initial altcoin picks are layer 1 projects. Currently, I am addressing DeFi-based projects, as well as tokenization. Next on the list is AI. On top of that, there are my more modest altcoin selections, in terms of risk, as well as investments that extend beyond capital. These are projects such as Hive and Leofinance. Then there is my passive income network that also incorporates dollar-denominated earnings, which is a hedge against sudden volatility within the Crypto market.
Then there are tokenized investments, such as tokenized real estate, and others. My exposure is spread. Even if there is a majority holding, the numerous alternative investment vehicles and passive income mechanisms provide safety. I have always advocated building up multiple income streams and exposures to multiple assets and investment vehicles. Choosing to diversify into multiple assets and multiple sectors provides a level of comfort for any investor.
Final Thoughts
Along with varying assets and asset groupings comes varying risk and potential upside. Ultimately, a single bet can be extremely rewarding. However, it can also be extremely devastating. Nobody knows the future, and sometimes even the strongest of convictions can later be proven false. That doesn’t imply that we should ignore conviction, but rather provide a safety net for it instead.
Of course, assets like Bitcoin hold a relatively strong probability of success, but with that level of security comes the aspect of limited upside. Smaller bets on investments with a stronger risk/reward ratio can help to provide more significant gains with reduced allocation. Relativity ratios run constant in the world of investing and trading. I have found them to be foundational when it comes to successful trading strategies. Catch you in the next one!
Disclaimer
First of all, I am not a financial advisor. All information provided on this website is strictly my own opinion and not financial advice. I do make use of affiliate links. Purchasing or interacting with any third-party company could result in me receiving a commission. In some instances, utilizing an affiliate link can also result in a bonus or discount.
This article was first published on Sapphire Crypto.