If you’re thinking about jumping into investing, the options out there can be overwhelming. Many choose not to start investing because of the massive amount of options and information that’s out there. Today, there are even more options available to beginning investors with the introduction of blockchain and cryptocurrency. Seasoned investors know that diversification is important, so investing in both traditional stocks and cryptocurrency can be a way to mix up your portfolio. By spreading out your wealth, you optimize yourself for less risk and a better chance of increasing your profit. So what does a well-diversified portfolio look like for both stocks and cryptocurrency? How do you decide which one is right for you?
When you diversify your portfolio, you’re simply putting your dollars into multiple places, which can help minimize your risk versus putting all your cash in one place. If one of your stock’s price goes down, you won’t lose all your money at the same time. Many investors will invest in different industries to diversify their portfolio even further or invest in different asset classes such as stocks versus bonds, which often react in opposite directions in the market.
Many choose to diversify their stock amongst growth, aggressive growth, growth and income, and international mutual funds. Spreading your money across these four different fund options will minimize risk for any investor, beginner or not.
If you’re ready to get started investing in the stock market, you’ll need a broker. These are some of the best ones for beginners. Your stock broker is a seasoned professional and can help you make better decisions regarding your first investments and beyond. A good broker will help you build a diverse portfolio and make the right stock choices at the right time, as well as give you access to stock options that you can’t necessarily access by yourself such as foreign stocks.
These traditional methods of diversification are similar for cryptocurrency. Like stocks, cryptocurrency is dependent on supply and demand but does tend to be much more volatile versus traditional stocks, mainly due to the decentralized nature of the cryptocurrency markets. “Hype” and news coverage can also influence the value of any given cryptocurrency. However, many beginners aren’t sure where to start when investing in cryptocurrency. Often, there is a general lack of understanding regarding blockchain and cryptocurrency, or the different coin options are overwhelming to new investors. Because there are no brokers for cryptocurrency, you’re doing much of the research yourself.
Investing in cryptocurrency simply means you are investing in the project itself. Diversification in cryptocurrency is just as important as it is for the traditional stock market. Generally, there are three categories of cryptocurrency. Traditional cryptocurrencies are basic digital currencies that individuals or businesses use to make secure transactions utilizing the immutable public ledger, also known as the blockchain. Bitcoin is a traditional cryptocurrency that most are familiar with. Another traditional option is privacy coins. Privacy coins are much more anonymous than other cryptocurrencies.
The second category is platforms. Also known as “fat protocols” these are used to make blockchain infrastructure where things like smart contracts are built. Some examples of this category are Neo or Cardano. The third category is utility tokens. Utility tokens are projects that are built with a particular industry in mind, such as the popular VeChain for supply chain management.
Many investors choose to diversify their cryptocurrency across these three categories and across different industries. It’s important when choosing your cryptocurrency options to consider the number of coins that are currently in circulation and the total supply of coins that will ever exist. Without a traditional broker, you’ll need to do your research on which option is best for you.
There are many differences between traditional stock and cryptocurrency, but the main difference between the two is profit versus risk. Cryptocurrency is considered much higher risk but does provide a higher chance of creating a quick profit. Stocks are generally safer than cryptocurrency but have smaller returns. As a beginning investor, you should consider your investment goals and find the best market and options to fit your personality and financial needs. Hopefully, with a range of diversification and a bit of luck, you can start making great returns with either traditional stocks or cryptocurrency.
Disclaimer The views, opinions, positions or strategies expressed by the authors and those providing comments are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of CoinGape. Do your market research before investing in cryptocurrencies. The author or publication does not hold any responsibility for your personal financial loss.
Passionate about Blockchain and has been researching and writing about the Blockchain technology for over a year now. Also holds expertise in digital marketing. follow me on twitter at @sagar2803 or reach out to him at sagar[at]coingape.com