Building the Best Crypto Portfolio

May 21, 2020

We're over a decade on from the 2009 appearance of Bitcoin (BTC), and according to Forbes many financial advisors are recommending that their clients add digital currencies to their portfolios. Economists from Yale University and elsewhere are now saying that you should include crypto in your portfolio—about 6% of your total assets—to balance out traditional stocks, bonds, and other investment tools. Diversified portfolios that include crypto even outperform those with only traditional assets. All of this only cements what many already knew: most of us look at virtual currencies like Bitcoin as an investment that you have more direct control over, and only secondarily as a virtual replacement for cash. The question, then, is less should you invest in cryptocurrency and more how and how much should you invest in crypto.

So while Invity isn't here to offer financial advice, we do want to share some thoughts on how to plan a crypto investment strategy and build an investment portfolio that includes Bitcoin and other digital currencies.

Define your goals

It needs to be said out front: the best way to invest in cryptocurrencies is the best way for you. There's no one-size-fits-all answer, and only you know the specifics of your situation. So think hard about where you are in your life and what your goals are. If you're younger and just starting to get into investing, maybe you're okay with a bit more risk, which could also mean more reward. If you're later in life, you may want a safer store of value that will stay with you through retirement. Or perhaps you're quite comfortable already and just want to explore the world of crypto with your disposable income.

It's important to be honest with yourself, as these factors and more influence how much to invest in cryptocurrency, how often you should sell or trade, and even the best coin to buy for investment purposes. And of course, it needs to be said that investments like Bitcoin are far riskier than "safe" assets like bonds or certificates of deposit—so don't gamble more than you're willing to lose. If you're not sure exactly where your priorities lie or you simply want to minimize risk, taking advantage of "dollar-cost averaging" by investing smaller amounts at regular intervals probably isn't a bad idea.

Do your research—with an advisor and on your own

You should closely investigate the advantages, disadvantages, and implications of buying crypto
Bitcoin and magnifying glass (By Marco Verch licensed under CC BY 2.0)

Once you've decided what your goals are, it's a great idea to talk with your financial advisor. These experts may be able to offer even greater clarity on topics like the advantages and disadvantages of bitcoin versus stocks, for example, or they may even provide their own experiences with crypto investing.

Unfortunately, even as digital currencies increasingly enter the mainstream it may be the case that your financial advisor isn't familiar with crypto. It's also not uncommon for larger firms to ban advisors from discussing cryptocurrencies altogether. While reasons for an unhelpful advisor may vary, what it means is that you'll probably have to do quite a bit of your own research on the best ways to invest in bitcoin and altcoins that are appropriate to you. It also means that you're already in the right place—Invity aims to provide information and tools that help you invest in crypto safely and painlessly.

Choosing which cryptocurrency to invest in

When it comes to choosing the exact coin you want to put your money into, it's easy to get overwhelmed by all the options out there. We're putting together a list of the top five cryptocurrencies to invest in, which will give a general idea of what the biggest names in the crypto space are all about. These are probably what you want to think about when you're just getting started with things like Bitcoin: long-term investment holdings with plenty of easy-to-find info, fairly transparent and established ecosystems built around them, and comparatively less volatility. Even here, though, there's money to be made: Bitcoin's price tends to act out of sync with traditional markets, and if banks continue to adopt Ripple as a payment method, XRP could see its price rise—just to name a few possibilities!

Lesser-known coins tend to be really speculative. Of course you could find the next big thing and make money hand over fist—but an obscure coin's value could also sputter out to nothing. When investigating new or niche coins (and really cryptocurrencies in general) it's best to start by reading the currency's white paper. This should have firsthand information from the crypto asset's creators about the problem they see, how their coin will solve it, and the plan for the coin's future—kind of like a crypto business plan. If this document is convincing and soundly reasoned, it may be a good idea to continue by researching what people are saying about this currency throughout the crypto ecosystem. Try to get a good look at the good, the bad, and the ugly—it's always best to make well-informed decisions!

Buy crypto!

Once you've done your due diligence, it's time for the fun part: actually getting your hands on some crypto! There are a number of safe ways to buy bitcoin and other currencies, but perhaps the easiest is to do so from the comfort of your own home. You can use Invity's Buy crypto feature to purchase any of the top cryptocurrencies simply using a credit or debit card denominated in most of the world's major fiat currencies, or a number of other options.

It's also possible to buy crypto with cash, and there are plenty of good reasons why you should. You can also check out our sister project for a detailed heatmap of places you can buy bitcoin in person (and spend it too!).

Keep an eye out and diversify your crypto!

After investing in your first round of digital currency, you may want to observe the markets and get the hang of how your alternative investments work. That's a good strategy, and there are a number of good news outlets that can keep you up to date on crypto prices and developments; CoinDesk and Cointelegraph in particular are usually well researched and comprehensive. There are also a number of good cryptocurrency investment apps to help you keep track of your assets.

Consider a mix of different types of assets, both in terms of asset classes and within the crypto class
Diversify with Asset Allocation (By licensed under CCBY-ND 2.0)

Or maybe you're already impressed with how easy it is to include crypto in your financial portfolio—great, now it's time to diversify your assets even further! Just like it's wise to carry stocks from a wide variety of different companies, it's smart to incorporate a variety of cryptos into your digital currency holdings. This might mean holding only two main currencies at 80% and 20% each (for those who think two major coins are the most promising), or it may mean having ten currencies each make up 10% of your crypto assets (for those who aren't biased toward one type of crypto or another).

Once you've decided how well you like crypto and what type of strategy you're interested in, continue your research process: find out what blind spots you might have or what new opportunities are emerging. Then return to Invity's Buy crypto feature to participate in the biggest markets, or use our Exchange crypto feature to trade some of your existing crypto for specialized altcoins.

By balancing your cryptos, you can get more out of this emerging sector of the economy. More importantly, by including crypto in your holdings, you've brought your portfolio into the twenty-first century, so you can get the most out of it!

Cover photo: Eggs in One Basket by John.U, licensed under CC BY-SA 2.0

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