Financial Education #3

By CryptoBlonde | CryptoBlonde | 30 Aug 2020


Financial education and cryptocurrencies: what's the relationship?

After the lessons learned on the #1st post and on the #2nd post it's time to see the relationship between personal financial education and cryptocurrencies. Anyone who wants to be successful with this type of application, in addition to knowing the market very well, needs to understand their financial reality, investment capacity and other points. If you are in the habit of acting on impulse, you may end up investing an important part of your assets in an unknown cryptocurrency and losing money because you don't have the patience to wait for the valuation or because you don't have enough knowledge to thoroughly analyze whether the investment is worth it.

When you come to understand all the fundamentals of financial education and do your financial planning accurately, it will be easier to identify what types of investments work for your goals and desires. With the right knowledge you will start choosing the best cryptocurrencies to have in your portfolio.

DIVERSIFICATION is spreading your risk across different types of investments, the goal being to increase your odds of investment success.

Any good trader wants to make a profit. In order to make a profit, you need to take some risks. Often, a correlation exists between risk and profit. The higher your risk, the higher your profit. However, don’t forget about the downside. High risk also implies big losses. So, you must apply diversification in your crypto portfolio.

Your goal is to create a group of investments that exposes your portfolio to as many different areas as possible which helps to reduce the overall risk of your investments. For example, if your portfolio consists of 80% Bitcoin, 15% Ethereum and 5% Bitcoin Cash., it's pretty sure that your portfolio isn't a well-diversified portfolio. You are only exposed to three investments and every investments are heavily correlated. In case the price of Bitcoin drops, you’ll likely experience a drop in the price of Ethereum and Bitcoin Cash. This means your overall portfolio balance will drop which is a serious risk. Therefore, you want to invest in other solutions that are not necessarily tied to Bitcoin. In case the Bitcoin price crashes, you don’t lose the value of your full portfolio.

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Here are a couple of possible crypto portfolio diversification strategies:

Different industries

The idea for industry diversification is to expose your portfolio to as many industries (finance, supply chain, data analysis, innovation) as possible. It’s possible to diversify within each industry by looking at the whitepapers of the several projects. You must do your own research and see if you want a mix of well-established projects, projects trying to solve new solutions, emerging problems, innovation-based investment projects ans so on. It’s up to you to determine your values and how you want to invest. However, don’t invest in a project if you don’t know much about a project, its values, or the industry they’re active in. Always do upfront research to get a better understanding of the industries’ challenges and opportunities.

Different types of solutions

You must invest in different types of solutions or products. For example, you can spread your investments between newly developed blockchain platforms, new protocols, and new tools or services such as wallets or data providers, that way, by investing in different segments of the blockchain, you are spreading risks. 

Different types of coin

You can diversify your investments based on the type of cryptocurrency. You can choose to invest in privacy coins, stablecoins or utility tokens. Make sure to analyze the different possibilities and how you want to allocate your portfolio. 

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Geographical diversification

You should choose to include projects from different regions in the world in your crypto diversification portfolio. You can diversify by choosing Asian, European and American projects to have a more geographically balanced portfolio.

Conclusion

You can try to reduce risks as much as possible just by diversifying, simple as that. Remember that investing is risky but you have the ability to manage risks to a certain extent by making smarter investments, you can drastically reduce the impact of global slashing events on your portfolio.

 

Are you still with me ? .... Great because i just remember another one.....here is another tip for you:

You should also take a look at the social status of the projects. Having a large and loyal community determines to some extent the success of a project which makes them an attractive investment option.

 

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CryptoBlonde
CryptoBlonde

Crypto Enthusiastic. Crypto Hodler. NFT addict :-)


CryptoBlonde
CryptoBlonde

I'm a crypto enthusiastic who likes to learn all about the crypto world. I will share my journey with you all and hope you get inspired....feel free to comment.

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