Fundamentals of building and maintaining your crypto portfolio

[randomhumster]

No so many people in crypto have only BTC or ETH. Everyone who has several coins is actually maintaining a portfolio. So it is important to know how to control it effectively, but the more i read posts here, the more I understand that most people do't even plan it. Below i will describe the fundamentals everyone should understand. The post is mainly targeted to educate newcomers. I encourage expirienced users to share thoughts in comments as well.

Rate of return

The main goal of any investor is to make profit. First of all you need to decide how to calculate it. There are 3 most used strategies in crypto:

 - Take profits in fiat currencies or its substitutes like USDT. (I don’t personally like USDT, but it is still very popular despite all events)
 - Take profit in BTC. All investments/trading are done to increase BTC holdings.
 - Take profit in your favorite altcoin. Most people use ETH, but you can choose any: NEO, ADA, XRP and etc.

Regardless of your choice, you need to plan your profit and set a goal. It can be +1000$ or +20% in BTC and etc. Once the goal is reached portfolio management is completed.

Risk management and diversification

The main rule here is the more profitable investment seems, the more risky it is. Diversification is the most common way to lower risks.
From risk level point of view we can divide all coins/tokens on:

 - Low-risk assets (LR) – first 5-10 coins on Coinmarketcap
 - Medium-risk assets (MR) – top 30 coins
 - High-risk assets (HR) – all other projects and ICOs

Note, you can use your own criteria to divide assets.
Depending on the percentage of assets with different risk levels, there are three main types of portfolios:

 - Conservative |5-10 assets |Risk ratio: 75%/25%/0% (LR/MR/HR) | Stable, but will not make lots of profit.
 - Moderate |10-20 assets | Risk ratio: 25%/50%/25% (LR/MR/HR) |The most commonly used type of portfolio.
 - High-risk |20+ assets | Risk ratio: 25%/25%/50% (LR/MR/HR) | Very risky, but can have a great potential on a bullish market. Sometimes it can be built only on ICO tokens.

One of the most general recommendation for any portfolio is to have at least 25% in BTC. I don’t follow it now and it might be a huge mistake.

Liquidity

Liquidity shows two things: interest of investors to this asset and how many tokens you can easily sell or buy. You need to check trade volume for a month at best (if it is available of course).  If you are going to buy a no-name coin with total 24h volume of 10 BTC, don’t expect you will be able to sell/buy on 1 BTC fast.
In general, always study projects before investing. Do both fundamental and technical analysis if possible. Check what other people think about this asset. And never invest in project that you don’t understand!

Investment horizon

The most important thing for portfolio management is to define investment horizon i.e. how many days/weeks/month/years are you going to maintain it. Things move fast in crypto. On stock market you can build your portfolio for 4-5 years. In crypto 6 month is already a long hold. The smallest investment period here several days (or even less if you are day trader), the biggest is couple years.
For a small investment period you should choose small goals like 10-15%. If you are going to hold your assets until Christmas, you can set 100% or more.
The last thing for today is plan your storage for assets. We all know that exchange is not the best place for a long hold. Always to try to low risks and use secure storages like cold wallets, hardware wallets and so on. If you still want to store your assets on an exchange, divide them between 2 or 3 exchanges at least.

My full rticle is publishe on steemit: https://steemit.com/cryptocurrency/@cryptohumster/the-fundamentals-of-creating-a-crypto-investment-portfolio

In the next article I will talk about rebalancing your portfolio and what could you do with profit. Subscribe or follow me on twitter not to miss it.

**************************** UPDATE ****************************
As promissed, the second part is published: https://steemit.com/cryptocurrency/@cryptohumster/the-fundamentals-of-a-crypto-investment-portfolio-rebalancing

Rebalancing basis
Rebalancing your crypto portfolio is one of the most important aspect of portfolio management. It allows your portfolio to survive market deep, adopt to market condition, mitigate risk and optimize your profits. So what should you know about rebalancing?

There are two main rules:
 - Rebalancing is always based on investment horizon
 - Rebalancing is always made according to a pre-conceived scenario

I don’t need to explain why you need to consider investment horizon. It is easy to understand that if you invest for year you don’t need to rebalance your portfolio every day. You need to consider rebalancing once a month or once in 3 weeks.

As for the plan, there are two main strategies:
- Preservation of the current percentage of different asset groups (or for each risk level individually). For example, if you have moderate portfolio with 25%/50%/25% percentage, you may need to buy/sell assets to until the original proportion is restored.
 - Changing shares. Some of your assets perform better than the others. You may want to increase the share of the most profitable assets and get rid of assets, bringing only losses. This operation will make your portfolio more profitable.

You need to decide what to do with a positive imbalance after rebalancing. You can either fix your profit, leave it as part of portfolio or reinvest.

The frequency of rebalancing depends on the following factors:
 - Investment horizon. For long-term portfolios (from a quarter to a year or more), it makes sense to conduct this operation once a month. For medium-term - once a week.
 - Sharp change in the proportions. For example, there was a portfolio with a balance of assets of 50/50, and after a while, it became 60/40. Such a significant change in the structure usually requires a rebalancing.
 - Individual news background for each asset. For example, if there are positive rumors on a coin you may consider investing more and sell when the news come out. Remember, we always buy the rumors and sell the news.

In general, I will not recommend diversifying portfolio too much as it will be difficult to rebalance portfolio.

[randomhumster]

Quick follow up. Deviding cryptocurrencies from the point of risk level based on capitalisation is the easiest way, but not the only one. It will be better if you'll come up with yiur own grades based on personal vision.

[slaman29]

Quick follow up. Deviding cryptocurrencies from the point of risk level based on capitalisation is the easiest way, but not the only one. It will be better if you'll come up with yiur own grades based on personal vision.

And also, as many have argued... a pointless one, at this moment in time anyway. Then again, most people, if doing this 12 months ago, would find that had they divided up their portfolios against a well thought out strategy of mitigating risk, versus a random portfolio based on market capitalization (say, top 50) - they'd actually end up more or less at the same stage today.

There's a really big problem with crypto now to me, in that we're treating it like they've got fundamentals... when really only Bitcoin qualifies.

[Cnut237]

- Low-risk assets (LR) – first 5-10 coins on Coinmarketcap
 - Medium-risk assets (MR) – top 30 coins
 - High-risk assets (HR) – all other projects and ICOs

This is a good and accepted general point, that higher cap coins are lower risk and also have less chance of massive % increases... but it's certainly not always the case. There are plenty of projects in the top 30 that I wouldn't touch, and some outside the top 100 that are think are very solid and low risk. So I think DYOR is always more important.

One of the most general recommendation for any portfolio is to have at least 25% in BTC. I don’t follow it now and it might be a huge mistake.

I didn't follow it at first; when I started I was all alts. Now though I do have some BTC. One good reason to hold BTC is that it encourages you to keep up with BTC news, which can affect the whole market... where bitcoin leads, alts often follow.

[mariaozawa]

if I myself see the potential on altcoin that I have if altcoin is very good or high-poted then patiently I wait for it to rise to the price that I target, but if I see altcoin it is not too potential then as soon as I sell or I ignore it so only.

[Cnut237]

if I myself see the potential on altcoin that I have if altcoin is very good or high-poted then patiently I wait for it to rise to the price that I target, but if I see altcoin it is not too potential then as soon as I sell or I ignore it so only.

I do think that having a target price is very important. If you know exactly at what price you are going to buy or sell a particular coin, then it helps to protect you against making spur of the moment emotional decisions. It is a good strategy.

[HashFace]

- Low-risk assets (LR) – first 5-10 coins on Coinmarketcap
 - Medium-risk assets (MR) – top 30 coins
 - High-risk assets (HR) – all other projects and ICOs

This is a good and accepted general point, that higher cap coins are lower risk and also have less chance of massive % increases... but it's certainly not always the case. There are plenty of projects in the top 30 that I wouldn't touch, and some outside the top 100 that are think are very solid and low risk. So I think DYOR is always more important.

One of the most general recommendation for any portfolio is to have at least 25% in BTC. I don’t follow it now and it might be a huge mistake.

I didn't follow it at first; when I started I was all alts. Now though I do have some BTC. One good reason to hold BTC is that it encourages you to keep up with BTC news, which can affect the whole market... where bitcoin leads, alts often follow.

Good points here.  We have to remember that BitConnect spent a long time in the top 30, and IIRC, was even top 10 for a while.  I agree with the general idea that top ranked Cryptos are safer, but you still have to evaluate projects case by case.

[STIKS1911]

What are the profit goals you set for yourself? For example, a coin brings 100% profit, half of the total amount of this coin I sell, and the rest I hodl for a long time. How do you do?

[randomhumster]

Good points here.  We have to remember that BitConnect spent a long time in the top 30, and IIRC, was even top 10 for a while.  I agree with the general idea that top ranked Cryptos are safer, but you still have to evaluate projects case by case.

Yes, that's the point. No crypto asset is safe, but some has proved it's value, have a large comunity and strong fundamental reasons to be at the top. Can ETH fail? Yes, it can, but a lot should happen for this to come true. At the same time some very promising crypto can fail easily in case of bad news, team mistake and etc. Just because it is young. Anyway, you always needd to think twice and check everything you can before investing.

[vv181]

Good points here.  We have to remember that BitConnect spent a long time in the top 30, and IIRC, was even top 10 for a while.  I agree with the general idea that top ranked Cryptos are safer, but you still have to evaluate projects case by case.

Yes, that's the point. No crypto asset is safe, but some has proved it's value, have a large comunity and strong fundamental reasons to be at the top. Can ETH fail? Yes, it can, but a lot should happen for this to come true. At the same time some very promising crypto can fail easily in case of bad news, team mistake and etc. Just because it is young. Anyway, you always needd to think twice and check everything you can before investing.

We are investing in a highly speculative asset, so we are at a great risk of losing. In my opinion, Bitconnect was staying in the top 30 CMC for quite a while is a proof, that the cryptocurrencies users are still misunderstood and unknowledge, they think cryptocurrencies as a getting rich quick scheme.

[serjik228]

now the strategy lies in a very simple way
I watch what altcoin most adjusted and wait until he returns to the previous price

[randomhumster]

now the strategy lies in a very simple way
I watch what altcoin most adjusted and wait until he returns to the previous price

So your plan is to sell when coin reach its ATH again? You don't plan to sell in parts along the way?

[traderethereum]

now the strategy lies in a very simple way
I watch what altcoin most adjusted and wait until he returns to the previous price

So your plan is to sell when coin reach its ATH again? You don't plan to sell in parts along the way?

it's always good to sell when coin reaches the highest price because after that, the price will be down again and sometimes the price will make a correction and sometime it will down too deep. so we can make a big profit for this and meanwhile we have a chance to buy another amount when the price is down and we can repeat to wait the price increase back. besides that, if we can buy at the low price, we can keep the rest of the profit to buy another coin.

[numizmat]

> We all know that exchange is not the best place for a long hold. Always to try to low risks and use secure storages like cold wallets, hardware wallets and so on. If you still want to store your assets on an exchange, divide them between 2 or 3 exchanges at least.

You can try some new crypto exchanges which adress exactly this issue by keeping most of the client funds in secure hardware storages: https://www.cryptocoindude.com/icos-april-may-2018/ For example, LCCX (London Crypto Currency Exchange) project will provide the facility to place 60-75% of client funds offline in cold storage.

[slaman29]

> We all know that exchange is not the best place for a long hold. Always to try to low risks and use secure storages like cold wallets, hardware wallets and so on. If you still want to store your assets on an exchange, divide them between 2 or 3 exchanges at least.

You can try some new crypto exchanges which adress exactly this issue by keeping most of the client funds in secure hardware storages: https://www.cryptocoindude.com/icos-april-may-2018/ For example, LCCX (London Crypto Currency Exchange) project will provide the facility to place 60-75% of client funds offline in cold storage.

Yes, that's the generic advice, but there are so many other factors to consider. For me, I still stick to normal desktop clients like electrum. They're secure enough for me, I practice good security and encryption, plus more importantly, I don't have SO much that I would need hardware wallets.

There's another thing to consider too. Hardware wallets are highly technical and can be really difficult to use. Most newbies can't even run a node what more upgrade firmware on these hardware devices.

[randomhumster]

Yes, that's the generic advice, but there are so many other factors to consider. For me, I still stick to normal desktop clients like electrum. They're secure enough for me, I practice good security and encryption, plus more importantly, I don't have SO much that I would need hardware wallets.

There's another thing to consider too. Hardware wallets are highly technical and can be really difficult to use. Most newbies can't even run a node what more upgrade firmware on these hardware devices.

Yes, for security you always sacrifice usability. And using cold wallets or hardware wallets is a lot harder than exchange wallets. But you still have to learn to use more secure storages. Investing your time to learn security is profitable.

[BitcoinBallerina]

The most important part is diversifying into projects that have a working product and have real world use cases. If you are invested in projects like those then you wouldn't have to worry when the price drops and you can hodl stronger as the price is going to recover sooner or later.

[altsMlk]

I'm hodling few of first 5 coins for a long term in hard wallets. And also I invest in icos. I do not trade too much coz it's not my thing. Also I have invested about 20% my risk capital on local share market. I have distributed my capital in many ways. Not only in cryptos. And I recommend you all to do the same to manage your risk.

[randomhumster]

I'm hodling few of first 5 coins for a long term in hard wallets. And also I invest in icos. I do not trade too much coz it's not my thing. Also I have invested about 20% my risk capital on local share market. I have distributed my capital in many ways. Not only in cryptos. And I recommend you all to do the same to manage your risk.

You are raising a very important point here. As was described on my post you need to diversify risks and hold several coins, but you can go even further. You can diversify your investments between stock market, crypto and other. It will make ypur position stronger, but will take much more time to manage your investment.

[limmousine]

Honestly I am not very good at trading, have tried several times but still got stuck. For the time being I am just a long-term holder, 75% of my assets are in popular coins and 25% I invested in my favorite alt and also ico. I'd rather be a holder, than I just follow the trend of investing and trading following a signal or trading group.