Quote from: Goodmens on December 10, 2018, 12:13:53 PM

4 Types of Coins to Diversify Your Crypto Portfolio & Manage Risks

In the volatile world of cryptocurrency trading, it is important to implement some strategies needed to manage your cryptocurrency investments. Managing your investments well means that your portfolio of coins is protected against risk. This guide will explore the different type of coins you should hold in order for you to manage a well-balanced investment portfolio.

A portfolio is a term that represents the collection of all investments you own across all types of investment assets. If you only own 10 types of coins and tokens, then your portfolio consists of only the 10 cryptocurrencies. It is much better to own different kinds of investments across different categories. For instance, having a portfolio consisting of a mix of cryptocurrency coins, stocks, and bonds.

Lets start the ball rolling by understanding the most important concept in investing, called Risk.

(Read more: Analyzing Cryptocurrency Risk: Existing Coins vs ICO)

What is Risk?
Risk is defined as the possibility of loss that an investor is willing to take in exchange for the possibility of gains from his investments.

There are generally two types of risk in the cryptocurrency market:

Market (Systematic) Risk
Market risk is the risk associated with the overall performance of the cryptocurrency markets. Market risks cannot be eliminated. If youve been an investor in the cryptocurrency space since the start of 2018, you will understand that the cryptocurrency market is highly correlated to Bitcoin and each other. The entire market crashed at the start of 2018 after a tremendous run in 2017, and no matter which coins you invested in, almost all coins and tokens experienced massive losses. This is an example of market risk.

Coin-Specific (Idiosyncratic) Risk
Coin-specific risk refers to the isolated risk of a single coin or token in the cryptocurrency market, influenced by factors specific to the project itself. If for example, a project experiences a negative event (such as network failure or running away with investors funds), then the coin holder that invested in that project will be a victim to the project-specific risk. Coin-specific risk can be reduced through diversification.

The fact is that in the investment marketplace, risks is as much an incentive as it is a red flag. Conventional financial wisdom states that the higher the risk, the greater the expected returns. Its no surprise that cryptocurrencies are the riskiest investments you can make.

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I dont know why a lot of people keep talking about this diversification, how exactly is that helping? Its not helping in any way at all. What about those that mistakenly bought a lot of sh#t coins just because they were to practice diversification, at the end they end up as the main losers in everything.

No matter how much you try to diversify your portfolio to avoid loss, when the market drops they all drop together, if youre lucky, it can only minimize your loss.