Top Cryptocurrency Portfolio Management Tips

Tue Sep 12 2023

Knowing how to efficiently manage your cryptocurrency portfolio can make all the difference. Here is a set of tips and best practices to consider whether you're trading manually or using an algorithmic crypto trading platform.

A solid strategy, plenty of research, and a good risk management practice is the backbone of every strong portfolio. In this article, we will cover the top portfolio management best practices, whether you are planing to manage your portfolio manually or via an algorithmic cryptocurrency trading platform.

What is Portfolio Management?

Portfolio management involves the selection and oversight of a basket of different investments to achieve long-term financial goals while considering your own risk profile. There are two types of portfolio management ideologies: active and passive. Active portfolio managers attempt to “beat the market,” while passive ones invest alongside the market to “match” it.

The current understanding of Portfolio management is based on the Modern Portfolio Theory (MPT), developed by Harry Markowitz in the 1950s. MPT gives mathematical form to the basic intuition behind diversification, emphasizing that it’s safer to invest in a range of different assets or asset classes than just one. In cryptocurrency and beyond, investors need to compose a portfolio of different assets such that their returns will be maximized without increasing their level of risk.

Building a Cryptocurrency Investment Portfolio

Building a cryptocurrency investment portfolio involves determining which assets to compose a portfolio from, spreading the asset-specific risks by investing in a variety of well researched and well chosen assets. While there’s no consensus on the exact number of cryptocurrencies one should hold, a diversified portfolio should strike a balance between the risk-reward ratio, availability of funds, and time availability to actually manage the portfolio when considering which assets to include as part of it.

Whether you’re managing your portfolio manually, or using an algorithmic cryptocurrency trading platform such as Aesir, the assets chosen to invest in are usually more important than the number of assets to invest in. For instance, you could spread your risk over 20 different assets, but they’re all memecoins low in the Marketcap rankings. It’s possible that approach might not yield the best long term results.

Investors need to consider several factors when selecting cryptocurrencies for their portfolio. These include the market capitalization, trading volume, market trends, and volatility. It’s equally crucial to evaluate the project’s whitepaper, the team behind it, and any strategic partnerships they’ve formed. In order words - do your own research.

Top Portfolio Management Best Practices

• Education and Research:
  • Continuously educate yourself about financial markets, investment strategies, and relevant news.
  • Research specific assets before investing, including company fundamentals, technical indicators, and market sentiment.
    
    
• Diversify Investments:
  • Spread investments across different asset classes (stocks, bonds, commodities, etc.) to mitigate risk.
  • Consider geographical diversification to shield from regional economic downturns.
    
    
• Define Your Investment Goals:
  • Clearly articulate short-term and long-term financial goals.
  • Decide on your investment horizon: are you investing for retirement, a major purchase, or short-term gains?
    
    
• Understand Your Risk Tolerance:
  • Analyze your willingness and ability to take on risk.
  • Allocate assets according to your risk profile: aggressive, moderate, or conservative.
    
    
• Use a Disciplined Approach:
  • Avoid impulsive decisions based on emotions or market rumors.
  • Stick to your investment strategy, but be prepared to adjust based on significant financial or life changes.
    
    
• Regularly Review and Rebalance:
  • Periodically review your portfolio’s performance against your goals.
  • Rebalance assets to maintain your desired allocation and risk level.
    
    
• Manage Costs:
  • Be aware of transaction fees, fund management fees, and taxes.
  • Opt for low-cost index funds or ETFs when they align with your investment strategy.
    
    
• Maintain an Emergency Fund:
  • Keep a liquid emergency fund to cover unexpected expenses without having to liquidate investments at an inopportune time.
    
    
• Stay Updated with Market News:
  • Regularly monitor financial news and macroeconomic indicators.
  • Understand global events and their potential impact on markets.
    
    
• Seek Professional Advice When Needed:
  • Consider consulting with a financial advisor or tax professional for personalized guidance.
  • Ensure any advisor you engage has relevant credentials and a transparent fee structure.
    
    
• Avoid Over-leverage:
  • If trading on margin, be cautious and understand the risks involved.
  • Avoid using borrowed money to invest unless you’re confident about the risks and potential returns.
    
    
• Tax Efficiency:
  • Understand tax implications of buying and selling assets.
  • Utilize tax-efficient strategies like tax-loss harvesting or maximizing tax-advantaged accounts.
    
    

Portfolio Tracking Apps and Algorithmic Trading Platforms

To monitor a range of cryptocurrencies, investors can use specialized software called portfolio trackers. These applications simplify the concepts of portfolio management (asset allocation, diversification, rebalancing) within a user-friendly interface, either on desktop or mobile platforms. Such trackers allow for seamless trading without deep diving into the software intricacies.

But beyond just tracking, algorithmic cryptocurrency trading platforms can play a pivotal role in managing crypto portfolios. These platforms use advanced algorithms to determine the best times to buy or sell assets based on predefined conditions, helping maintain desired portfolio balances. Furthermore, they can assist in diversifying portfolios by analyzing market data and suggesting when it might be beneficial to trade one asset for another. For passive investors, these platforms can be set to automatically rebalance portfolios at specific intervals, ensuring that the desired asset allocation is maintained without manual intervention.

Conclusion

Portfolio management is more than just selecting a mix of assets; it’s about continuously aligning that mix with one’s financial goals and risk tolerance. In the dynamic world of cryptocurrency, leveraging tools like portfolio trackers and algorithmic trading platforms can offer a strategic advantage. By integrating algorithmic trading into their strategies, crypto investors can make more informed decisions, streamline their trading processes, and potentially achieve better returns, all while managing risk.

Before automating your portfolio, we recommend testing your strategy on our crypto algo trading platform. Simply create an account and test testing within minutes. And if you don’t have a strategy, check out our Social Hub and copy other profitable strategies with a single click.