The potential gains from cryptocurrency are hard to compete with. The price spikes and dips create huge opportunities for investors to make both short and long-term profits from all of the key cryptocurrencies. The potential risks are huge too, however. If you are a crypto investor you should be looking for ways to diversify your investment portfolio into other financial vehicles to reduce your risk and your exposure to crypto market volatility. Protect your wealth and your financial future with some of these investment opportunities that allow you to move away from a crypto-centric portfolio and spread your risk.
Precious Metals: Value Versus Volatility
The crypto markets can be incredibly volatile. The price of all the big crypto coins like BitCoin and Ethereum can change massively over the course of a year. The value of any cryptocurrency can also be affected by geopolitical and social factors that are difficult to predict and cannot be influenced by traders and holders. Anyone with a sizeable crypto investment in their portfolio needs to hedge against this volatility by making longer-term and low-risk investments in other commodities and financial products.
Precious metals are a good first stop on your diversification journey. Prices for gold and silver are relatively stable and usually experience huge price increases rather than large drops in value. These precious metals are seen as safe haven investments in times of economic uncertainty and volatility. Though the short and long-term profit potential in precious metals is smaller than in crypto, it is also safer.
Investing in commodities like precious metals requires you to monitor the price closely, just as you would with a cryptocurrency. TradingView has many live charts including a XAUUSD live price chart and XAUUSD forecast that help traders and investors stay up to date with the latest changes in the market. Their tools can help you gain a better understanding of precious metal price fluctuations, and they also have live prices for currencies and several key stocks. If you keep a close eye on gold spot prices you will notice that they are very stable compared to cryptocurrencies, making gold a more sensible and safer place to store a portion of your wealth.
Index And Bond Funds: Long Versus Short
Cryptocurrency’s volatility is its biggest risk. The more volatile an investment is, the bigger the potential it has for profit and loss. When you are diversifying your investment portfolio away from a crypto-centric investment strategy, you should always look for long-term gains to hedge against your short-term risks. Index funds and bond funds are popular ways to add a long-term diversification investment to your existing portfolio.
There are a lot of advantages to this type of financial vehicle. The funds typically have very small fees, letting you get more for your money. They track the value of various stock market indexes and try to match their value rather than investing in a specific stock or industrial sector. These types of funds do not require consistent management or monitoring, which helps keep the operating costs of these investments minimal, which is another bonus to index and bond investments.
Index funds and bonds are not for everyone. Their passive management can often put investors off, as it can be difficult to react to large-scale changes in the market. Many of these funds also ‘lock in’ your investment for a set amount of time, often years, which can prevent investors from accessing their wealth if their circumstances change and they need it quickly. These types of investments are a good way to diversify your portfolio and reduce your overall risk, but are not suitable as a centerpiece of your investment strategy and should only form a small percentage of your overall investments.
Mutual Funds: Spreading The Risks
Investing in crypto and precious metals can be a sensible way to achieve a consistent return on your investments, but the more you spread your wealth across multiple investments the more you spread your risk. Never invest all of your money into a single investment or sector. Every smart investor, whether a small private trader or a big investment bank on Wall Street, should have a wide range of investments across many different markets.
Consider setting up your own mutual fund by investing in companies, products, and commodities that you use in your daily life, that you trust, and that you know well. This can be a mix of stocks, real estate investment trusts (REITs), exchange-traded funds (ETFs), and stable commodities that you have researched carefully. This private mutual fund should have a global outlook. Do not stick to investments that are at your front door. Look at markets, stocks, and commodities that are spread across the globe. The further you spread your mutual fund investments, the further you spread your risk. If one element underperforms, others in your fund will compensate with a strong performance. That is the plan anyway.
When building a mutual fund you do have to be aware of how much work it will take to monitor and manage this investment. If your fund includes 100 or more investments you may struggle to manage it effectively and staying on top of the fund could use up a lot of your time. Try to set yourself a limit early on. A mutual fund that includes around 25 investments should be easy to manage.
Know When To Get In And Get Out
More investments, more problems. This is one of the drawbacks of diversifying your portfolio. Sticking to one sector, like cryptocurrency, is risky but it is also convenient. Having many different investments across a high number of stocks, commodities, and currencies requires a lot of work. Just as you need to prepare your portfolio for diversification, you need to prepare yourself too. Maintaining your portfolio will suddenly require more of your time and more of your mental capacity to manage it effectively.
There are investment tools and strategies that can help make your life easier. Dollar-cost averaging is one of them. Using this strategy, investors spend the same amount on a stock or commodity they are interested in every day or week regardless of the price. By averaging the prices they are paying over a month, quarter, or year they can often lower the cost they paid for their shares and avoid the impact of market volatility. This strategy also saves time, as purchases become automatic and you only need to assess your purchases periodically rather than daily.
Working on autopilot has its disadvantages too, and you should be prepared for them. You need to keep a close eye on markets and overall trends so that you can anticipate market changes and get out of investments that are at risk. Make sure you are staying up to date with market conditions and any information on the companies you have invested in to get out of your investments if they are at risk.
It is important to be aware of the risks of cryptocurrency investments as well as their profit potential. For smart, long term investments you should be hedging against the volatility of the crypto markets by getting involved in more stable investments like precious metals. With a balanced strategy, you are much more likely to make big gains on your investments without experiencing large losses. If a big loss does come along you are less exposed and you will still have some funds to recover your position.