Diversification in crypto means that you not only buy different crypto, but also from different categories. For example, you can buy digital gold, smart contracts, DeFi and RWA crypto so that a downtrend in a particular sector does not unduly affect your portfolio.

Further diversification in assets outside crypto requires a lot of research, but can be a godsend in long crypto winters, the bear markets. That way, your money never stands still.

• Diversifying makes your crypto portfolio more resilient to specific setbacks
• Diversification beyond crypto ensures your money never stands still
• Risk diversification inside and outside crypto should ensure that you have as few products as possible that make the same price movements via correlation
• The market cycle can guide you in constructing your portfolio
• The more diversification you want outside the crypto world, the more research you need to do as well
• When you start investing in stocks, you can learn a lot from the masters, who have written books about it
• Investing is the best way to make money you don't use pay off
• Utilize Anycoin Direct's services for securing your cryptocurrency, such as the Anycoin Direct Vault
• Determine your investment horizon with every investment you make
• Risk and return go hand in hand; the highest risks also yield the highest returns

Inhoudsopgave

1. What does diversification mean?
2. Why diversify?
3. How does diversification work?
4. Disadvantages of diversification
5. The construction of diversification
6. Is investing wise?
7. Security portfolios
8. Investment horizon
9. Efficiency
10. Conclusion

What does diversification mean?

Diversification is a strategy in which you spread investments across multiple opportunities you have to invest money in a financial product.

You can think about investing in all kinds of crypto currencies, but also in other options, such as oil, gold, real estate, stocks, bonds or whatever.

The idea behind it is that there are always down times for certain sectors and then you can still make profits.

Why diversify?

If there is a long bear market dawns in cryptoland you can still do well in other markets. Such a bear market can last up to 3 years. Times when you can hardly do anything in the crypto market. You then usually exchange your crypto coins for fiat money or stablecoins .

Different sectors

Crises can also occur in other sectors, reducing the value of your investments. If you look at enough markets, there is almost always something in the world. For example, gold can boom during times of crisis, as seen in its price after 2008, which then more than doubled in a few years.

So the idea is that your money is never idle.

How does diversification work?

If you are going to invest you will have to ask the question of what you are going to invest in. At the beginning of your adventure you may want to take less risk than when you are more advanced. So you start thinking about what financial products you would like to have.

Once you have made a choice, you often find out that there are also times when your chosen products barely move from their place or even lose value. At such times, many people begin to think about diversification.

Risk distribution and correlations

The point of diversification is not only to spread risk, but also to invest in products that have no correlation. If they did, then all your investments would go together in the same direction. Then you wouldn't have to diversify either!

So unrelated assets are far preferable if you want to build a diverse portfolio. If you buy gold and Bitcoin the two might have a correlation, since Bitcoin is considered digital gold.

So you have to consider which products are so different that there is little or no affinity to increase potential returns.

Example of a diverse portfolio

Here you could think of a diversified portfolio consisting of, for example:

• Shares
• Property
• Bonds
• Precious metals
• Raw materials
• Different types of cryptocurrency

If your portfolio consists of a range of all these products, you have great opportunities for gains in different areas, so there is always something going on. You also have more chances of losses, but you don't have to take those in most cases. Your portfolio is then very resilient and you don't have to yawn for a few years when the bear market in crypto has arrived.

Diversification crypto

If you invest in cryptocurrency, you will have to deal with so-called narratives (storylines) or categories. For example, you can choose DeFi, digital gold, smart contract platforms, meme coins , layer2 or whichever you find attractive.

The point of diversification in crypto coins is again to choose currencies from different categories. By diversifying you reduce risk and spread the chances of success. If you have 5 meme coins and they start dropping as a category, the money flies out the door by the bucketful. It can also go the other way, where you score significant returns, but this is just too great a risk.

Hypes and trends in crypto

You also have to deal with hypes and trends. In many periods in the crypto market, certain coins are much more popular than other coins, for example, with a technological advance like AI. So these coins can bring in a lot of money. But when the hype dies down, these coins can also fall heavily through the ice in a short period of time.

Market cycle crypto

Of course, you also need to know Bitcoin's 4-year market cycle, otherwise you are buying cryptocurrency that will only become worth less. Analyze, buy in around the bottom and sell around the top. After a bull market, a cryptocurrency can lose up to 90-95% of its value.

Dangerous cryptocurrencies

Beware of cryptocurrencies that work with algorithms to keep a coin stable. Think back to Terra Luna, which went to 0 while in the process of reaching the moon. A small flaw in their smart contract caused their algorithm to pull down the entire ecosystem.

Also beware of platforms that pay out high interest rates. These are almost always ponzi schemes, where new investors have to pay to the older ones until the new investors run out and the game is up, such as Celsius or Wonderland TIME.

Classification crypto portfolio

A well-known way of dealing with these uncertainties is the portfolio distribution of 50/40/10 . Here you invest 50% of your stack in top 10 coins, which will probably still be there in 4 years. That is your solid part. Then you invest 40% in promising top 50 coins, which have a bit more risk, but also have more room for growth. That 10% you can then use to play, i.e. buy for fun some coins, which are high risk, but can also yield quite a bit, such as meme coins or new hype coins from the lower regions of CoinGecko.

For example, you could buy 1 coin from each category. You could think of digital gold, a smart contract platform coin, a coin with a large community, a hype coin and a meme coin, et cetera. That way you keep the portfolio diverse and spread risk and opportunity across multiple storylines.

We cannot say it often enough, but nothing is certain in cryptoland and we do not give advice on which coins to buy. We can only display possibilities.

Disadvantages of diversification

When you invest in stocks, real estate, bonds, precious metals, commodities and cryptocurrency there is also a "price tag" to it. You really need to know an enormous amount. Most people don't have the time or energy for this. If you invest without doing your own research you are actually gambling. Exactly what you should avoid when investing.

When you lose focus and numbers just pop up on your screen with statistics of your investments, it's time for a pass. The idea is to know more or less what you are doing. Otherwise you run the risk of panic selling or an overheated brain.

Also, the costs can skyrocket. If you have investments in so many places, you have to pay costs everywhere. Apart from the fact that you have to keep a whole administration to know what is where, including security.

The construction of diversification

When building risk diversification, you will run into restrictions. You can't just go analyze the crypto market, stock market and all these other markets and be an expert tomorrow.

Once you have analyzed the cryptocurrency market, and that's already quite a lot, you can add a market. Some markets are a little simpler than others. For example, the precious metals market is fairly straightforward. You look at the long-term price trend and determine a buying point.

Stock market analysis

The stock market does have a link to the crypto market, but it is much less volatile. Still, it has historically made a relatively large amount of money.

Since 2010, the Down Jones and AEX stocks are up 500% and the Nasdaq is up 1200%. So if you have a longer investment horizon, you can earn more than 30% per year on average with common stocks and almost 100% on average with technical stocks.

A big disadvantage of the stock market is that it is so big. You can't know everything about all those companies and different stocks. Fortunately, you don't have to. After all, you can invest in the index and you would have earned almost exactly as much as indicated above. Assuming you are not going to sell in a dip, like corona or a financial crisis.

Learn from the masters

Another option is to start reading books by successful investors, such as Warren Buffett, Benjamin Graham, Philip Fisher or Robert Kiyosaki. They can take you by the hand and tell you how to spot a promising company or a good investment opportunity during a stock crash. They can also tell you the difference between fundamental analysis and the technical analysis of a company.

You apply the same strategy to all other markets, so at least you know pretty well what you're doing.

If you are just starting out, you can also use the Dollar Cost Averaging strategy so that you pay average purchase prices for your assets and don't have to time exactly when you enter the market.

Invest with money you have left over

Always invest only money that you never need. If at any time you need the money for rent or something, your investments may be so low that you don't want them but have to sell them. Build it smart and declare your money outlawed. The money invested is on its way to its purpose and is out of this world!

Is investing wise?

Yes, so you know that again!

Onward then, we go for the bonus explanation. If you are saving money or have money left over each month you can do several things with it. What you have to remember is that central banks aim to raise about 2% every year inflation to have. So every year you have fiat money, the bank tries to take 2% off it by printing new fiat money.

Defense against inflation

The only defense you have against this is investing. Well, you can also start saving, but you often get less interest on that than inflation. Looking at the figures above, it is also clear why the rich keep getting richer. They are choking on stocks!

Investing in markets: knowledge and opportunities

As your knowledge increases, your risk decreases and your results go up. Investing in crypto you will probably do to get higher results faster, but it is still a hugely difficult task. Because things move so fast in the crypto world, timing is enormously difficult and it is very hard to be among the winners.

If you simply invest in a stock index with a long investment horizon, you can make hefty profits on average without having read a letter and only a brief glance at historical charts and returns.

And so you go through the opportunities and markets one by one and decide your strategy and whether you want to participate. The opportunities are there. It's up to you to seize them.

Security portfolios

We all know the debacle of FTX. If you had deposited all your crypto there you had now lost everything.

So it is not a good idea to keep all your possessions in 1 place. Especially not if a central authority is keeping your private keys has. So in this, too, you can diversify.

Anycoin Direct Vault

So you can hold a portion with a broker, like in our Vault, so you can trade and put the rest on a hardware wallet where no one can get to it. When you store crypto in our Vault, we make sure that all your coins are in our possession 1 on 1. A third party is responsible for security so there can be no conflict of interest. Thus, Anycoin Direct cannot use your crypto for anything and therefore they are completely safe in the Vault. Moreover, you cannot send these coins out of the Vault, you can only exchange them for fiat money and so this is a non-hackable system. Also, you don't pay blockchain fees for expensive networks like Bitcoin and Ethereum.

Choose a broker with a high reputation, such as Anycoin Direct, so your assets are also safe. You can check this at sites like Trustpilot.

Security traditional financial products

If you own multiple types of financial products, such as stocks, precious metals and crypto, you will need to protect all of these assets. Fortunately, in traditional finance, there are all kinds of safeguards for your investments, comparable to the deposit guarantee in banks.

When buying stocks and other assets on a platform, if all goes well, your entire investment is separated from the assets of the platform you are investing on. This is much more strictly regulated than crypto, and in the event of bankruptcy, you usually get a large portion of your investments back. Again, choosing a platform with a high reputation is preferable. They don't want to lose that one.

Investment horizon

When you start investing in any form you have to deal with an investment horizon. When do you want what, when are you going to sell and why are you investing in the first place?

Investment horizon crypto portfolio

The investment horizon in crypto is usually up to 4 years. Everyone knows that every 4 years the bull market comes after the Bitcoin halving (so far) and then the bear market in which coins lose up to 90% or more of their value, except for the absolute best like Bitcoin, Ethereum and Binance Coin. So if you want to make high profits you will have to both buy and sell within those 4 years, unless you have a HODL type are.

As crypto matures and becomes more mainstream, this horizon may start to shift or even no longer work that way. With the advent of institutional investors, the market leader, Bitcoin, could start to move very differently than in the old days of "amateur investors," with in its wake Ethereum and the other altcoins naturally moving with it because of pair sales.

Investment horizon traditional markets

Those who want to start investing in commodities will find that these horizons are very short. After all, if you wait too long, the potatoes are rotten and the strawberries are moldy. Buying and selling then goes much faster.

Precious metals and stocks tend to gradually increase in value, with stocks on average doing much better than precious metals, which rise more slowly, according to statistics. Gold, for example, has risen about 250% since 2010.

Markets like real estate are more specialized markets, where property values fluctuate a lot and revenues can fluctuate wildly due to government regulation. You will have to really apply yourself to these types of markets before you know what you are doing.

Implement strategy and set goals

Once you have determined your strategy you start executing it. You buy, sell and see results no matter what.

Once you've sold, the game begins again, unless you had a particular goal in mind. Many people invest because they want to get something together, in addition to the fun of investing. Common goals include that trip around the world, buying a house, paying for your children's college education and the like.

If you have it together then it's a good idea to treat yourself to a party to make it real. After all, numbers on a screen don't really make anyone happy. Sharing successes multiplies the fun. Those who know a little about math understand that this is a great thing!

You achieve your goals by creating a plan, a kind of roadmap, that takes you step by step along the way to your goal. An example would be to enter the crypto market first and then increase your opportunities by entering the stock market, regularly updating your portfolio to a solid foundation.

You can always continue with the exciting investing, but having goals keeps your focus and plans show you the way.

Efficiency

There is a strong relationship between risk and return. The higher the risk, the more likely you are to get high returns, but also to lose everything. This is true for virtually all markets.

It is up to you to achieve the highest possible return with the least possible risk.

Risk investing in traditional markets

When you start investing in gold you are by no means taking high risks. Gold has been worth a lot since ancient times and a well-known precious metal of value. Yet the price of gold rises over the years. This is because inflation drives up the price of gold. The amount of gold in the world is quite stable (around 200,000 tons), you can fill about 4 Olympic swimming pools with it. The amount of fiat money gets higher every year.

Because gold is not a business and cannot go bankrupt, it is both a solid investment and a relatively low-rising asset, since there is no shareholder value to be created or anything like that. In times of crisis, it is probably one of the best investments.

If you are going to invest in specific companies, this company may win or lose the competitive battle. This is a much higher risk than if you invest in the index because it contains both winners and losers. On the other hand, if you had put your money on the winner you would earn much more. You would have to "happen" to have them, for that you would have to be an expert to pick them.

Risk investing in crypto

If you start investing in crypto, you can make huge returns, but also big losses. The idea is to buy roughly at the bottom and sell at the top. Sounds simple, but you know how it goes. You think the bottom is finally reached, but the market manages to find another hole where the value drops. And then another pothole. Some cryptos you can still staker then for a perk in the form of passive income.

And when the top is reached you think it could well rise even higher. It drops a bit, but you remain confident. Until you see that you have bought too high and sold too low, so that your profits, if you have them at all, can be called poor. Investing in crypto currencies is much harder than most people imagine. Hindsight is always easy, but when you are in the middle of the market you will see that decisions to buy or sell are very often mistimed.

Forecasts various markets

Forecasts for profits are not entirely off the mark. For example, the crypto market is very volatile and uncertain. You never know if you are going to make a return even if you are an expert.

Forecasts for stocks are very favorable according to statistics. Even if at the absolute peak of a bull market you put all your money in it, after a maximum of 8 years you will have your money back according to charts from the past. The only exception to this is "The Great Depression," where stocks completely collapsed. Although it must be said that even then stocks were back to their old levels within 10 years. If you work with Dollar Cost Averaging you don't even need to know much about the statistics.

Conclusion

Diversification in crypto is an important tool to keep your crypto investments balanced, so that your holdings are not exposed to huge drops in value if a particular category is losing its popularity, assuming you know the market cycle and have bought low.

Further diversification can be a strong addition to your portfolio, giving you a much better chance of high returns.

You will have to overcome the disadvantages of such a diverse portfolio with firm analysis and solid administration.

The basis of your adventure will be crypto, or you probably wouldn't be reading this. However, there are also important opportunities outside the crypto world. Now that you know where those lie, you can start seizing them too, because the markets are very patient and bear markets are long.