CryptocurrencyInvesting

How Cryptocurrency Can Help You Diversify Your Investment Portfolio

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Seasoned investors who currently have most of their money sitting in a stocks and shares account may want to consider putting some of their money into cryptocurrency.

By taking advantage of crypto, alongside your more traditional investments, you can diversify your portfolio and hopefully improve your return on investment. Diversification is important because it means that you’re less vulnerable to potential fluctuations in the market – and if your main investment accounts take a big hit then it can be comforting to know that you also have money elsewhere.

Cryptocurrencies have outperformed traditional investments in recent years

Last year, Bitcoin and many other popular cryptocurrencies outperformed traditional assets by a huge margin. In the past 10 months alone, popular cryptocurrency Ethereum grew by more than 1200% – an enormous hike in value that would be welcomed by any investor.

They offer higher returns at a higher risk

Based on these figures alone, you could be forgiven by wanting to put your whole portfolio into crypto. But it comes with a catch: while the value of cryptocurrencies often climbs substantially, it can also fall by just as much. They are notoriously volatile, and this means that investing too much of your money in coins such as Ethereum could lead to losses.

The answer could be to take a percentage of the money that you currently have invested and move it into cryptocurrency. This allows you to take advantage of the potentially huge gains, while limiting your risks by also keeping a range of more traditional assets.

Your appetite for risk will determine what percentage you should invest

Ultimately, we can’t tell you how much of your investment should be in cryptocurrencies vs. stocks, shares and other types of asset. This will be down to how much risk you’re willing to shoulder. Those who are happy to take a bigger risk in the hope of bigger profits may want to put more of their money into cryptocurrency, while the more cautious among us can put more in and still reap the benefits.

If you’re unsure of what to do, or want to talk it through with an expert, then a financial adviser may be able to help you work through your options and decide on a suitable course of action.

Don’t choose just one currency

So far we’ve talked about using cryptocurrency to diversify your broader investment portfolio, but you also want to diversify the crypto itself. This means choosing a range of different cryptocurrencies to back – and there are a wide range of different currencies to choose from. Even within the cryptocurrency market you’ll find some, like bitcoin, that are very volatile and others that are more stable. Different cryptocurrencies are produced for different purposes, and this can lead to a difference in price performance.

There’s market analysis software available to help you consider the past performances of different currencies and make your investments accordingly. Take a look at the Bitcoin Revolution official website to find out more about cryptocurrency trading apps can help to identify potentially profitable investment opportunities, making it far simpler to get started if you’re not experienced with this market.  

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