The recent correction in the Bitcoin market should serve as a sobering warning to many. For the last few months of 2017, it seemed as if the market defied all logic and that it would continue upwards forever. People were taking out short-term loans, re-mortgaging their houses and maxing out their credit cards, all to buy cryptocurrencies.
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This is not an article by a no-coiner (somebody who owns no cryptocurrencies) saying I told you so. I am an avid supporter of cryptos and believe that some coins offer extreme value to humanity. I have been investing in cryptos for over two years, and have seen quite a few corrections. The points I make below are just a few basic guidelines to help you maximise your upside gains and prevent you from losing the farm.
#1: Don’t invest more than 5% of your investable assets
The first place to start, as with any investment, is don’t invest more than you can afford to lose. This just comes back to the age-old wisdom of not placing all your eggs in one basket. I know it is tempting to cash in your retirement savings and invest them all into Bitconnect or Dogecoin, as you heard that your brother-in-law made millions this way. Just don’t do it. The crypto markets are orders of magnitude more volatile than essentially any other market on the planet, and within this market there are some coins that are far more risky than others. When markets are booming it is easy to be fooled into thinking that you can’t lose, but markets move in cycles, and what takes the stairs up often comes down in the elevator. As a good rule of thumb, don’t invest more than 5% of your investable assets into the crypto market as a whole. By just allocating 5% you can boost the performance of your overall portfolio, without taking on a large degree of risk. In a recent article, Dwaine van Vuuren ran the numbers on this, read more here. If you would like to consult a wealth manager to help you calculate this figure, contact me via email.
Cryptocurrencies can add some great growth to your portfolio if you manage your risk accordingly. Consulting with a wealth manager such as myself to set up a well-balanced portfolio. Sharenet has all the tools under one roof to build a contemporary portfolio that will suit any risk profile.
#2: Invest on average rather than in a lump sum
The second point is try to invest on average, rather than in a lump sum. What this means is that you can avoid large swings in the value of your portfolio simply by purchasing some crypto every month, or even every week. This lets you get an average price, rather than a single one. The chart below shows how, in 2017, just by purchasing R500 per month of Bitcoin you can grow your investment without having to time the market.
#3: Rebalance your portfolio annually
Thirdly, rebalance your portfolio every year. If you made significant profits in crypto, take some money off the table. You can then reinvest these profits into other, less volatile assets such as property or your retirement savings. If you are savvy about it, you can leverage 5% exposure to crypto to greatly boost the overall performance of your total assets. This article explains this concept well. The Sharenet BCI Balanced, Income or Property funds are just some of the great options you have at your disposal to invest your gains. Speak to me about how you can do that.
#4: Invest rather than trade
Fourthly, don’t spend too much time trying to trade. Trading is not an easy business, most people make a loss. Rather take the position of an investor; it is more likely that the average person working a 9-5 will benefit more by taking this approach. This is simply because you don’t have enough free time to study the markets in-depth and are thus likely to make some costly mistakes. One option is buying an index fund such as those available through Iconomi. This gives you exposure to 20+ cryptocurrencies in a single fund, all you need to do is buy Ethereum or Bitcoin and then use these coins to purchase the index of your choice. However, I would point out that this in an unregulated product and thus Sharenet cannot offer advice on this service.
#5: Understand your investment
Finally, as with any other investment, don’t invest in things you don’t understand. If you don’t know the basics of cryptocurrencies, it is highly likely that you will be suckered into some type of crypto-scam. There are literally hundreds of them out there, as this market is largely unregulated. Spend some time and money getting educated on the topic. Sharenet offers a high quality cryptocurrency seminar, complete with 12 months of aftersales support. This means that you will have an expert on hand whenever you should need it, and you can avoid making costly mistakes.
Don’t you think it’s time to speak to a wealth manager who understands how to incorporate cryptocurrencies into your portfolio? Contact me here.
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Ricki specializes in the field of wealth management with a focus on holistic financial planning. He has a keen interest in the investment fields of property, technology, precious metals and cryptocurrencies. Ricki also holds a Masters degree in Science from the University of Stellenbosch.