Do you Diversify your Investment?

avatar of @alokkumar121
3 min read

Some of the terminologies we often hear in the Crypto market and I would say one of the most popular is known as diversification. this is not the only methodology we have instead people also talk about the dollar cost average which is another method that can help us build a better portfolio but the use case for both the terminologies or you call it methodology is entirely different. When we say diversification it means we need to diversify within the crypto investment or in other sectors. There is a saying that never keeps all your eggs in one basket and this is reasonably practical because you never know how things can be in future so it is better to avoid putting all the money in one instrument rather than putting on different instruments a better strategy and this is what called is diversification.

Now if you talk about the dollar cost average then this is a method that we can follow to invest in something with a disciplined approach. I mean to say we can follow a method of disciplined investing through some platform or automated solutions milled by any company for example these days some exchanges are providing this option to invest in various crypto coins through automated service. This way diversification is more about minimising the risk but the dollar cost average is more about investing with a disciplined approach.

Why diversification is required?

I'm not an expert investor but I have read multiple articles about investing where everyone is recommending to follow this approach while investing. This is right because this way we can minimise the risk in our portfolio and this diversification can also be in form of the different projects or different industries depending upon how you want to do it. For example, if you are in Crypto and you do not want to choose another industry for the investment then within crypto also you will have plenty of options to choose from and put the money according to your due diligence. bitcoin is on the top so everyone who is in Kypro possibly has invested in Bitcoin for sure but alts can also be considered for better returns because Bitcoin has already grown a lot and probably it will not grow that much which we have seen in the past.

The underlying way of diversification is what we can do within industries. For example, if you are 100 per cent in Crypto but you want to diversify then you can choose other markets including stocks or even some other metal options which can be gold or something where maybe the returns are not so high but at least you know that all the industries cannot be impacted by anything at the same time. I follow this approach however I still believe that this is not much but even within the crypto I have done it well. Its not that everything is good for me because there have been projects that have given me a bigger loss but its good that I do not put all my money into one project so if I calculate it as per the percentage then it is not more than 10% of any investment that I have done in Crypto.

Keep emotions aside

Emotions are the biggest problem in investment and we should never use this but it's not that easy. an expert or trained investor never puts their emotions on the investment and they follow the clear approach that they have decided in the beginning but for many investors, this is a problem. they get attached to this and they do not take the right action at the right time just because of these emotions and in many cases, it turns out to be in a loss-making situation. we need to set up a goal with a particular investment and if that is reached then the right way is to book profit and follow whatever is decided in the beginning. I have also followed the emotions on some of my investments and now I regret my decision because I lost a lot of money due to this problem. I know my problem and the only way forward is to avoid repeating it in future because I cannot go back in the past and change but at least this way I would be able to avoid the same mistake again.

I think it's better to learn from other's mistakes because if you do this then we can save our money but the better truth is that most of us do not follow this and most of us learn through our mistakes. I have made many mistakes in the past and I just try not to avoid them but if my experience can help anyone to avoid the loss-making situation in the future then I think the purpose of writing about is achieved.

Thank you

Posted Using LeoFinance Alpha