Digital assets are a type of holding that only exists in cyber format and typically come with unique usage rights and permissions. The most common category of digital assets is represented by cryptocurrencies, essentially virtual money that is stored in special digital wallets. Some of the other types of digital assets include non-fungible tokens, security tokens, and stablecoins. While the market for digital asset trading is still relatively new, it has attracted quite a lot of investors who are looking to diversify their portfolios and join this developing market and its tech innovations. Cryptocurrencies such as Ethereum are well-known for their changeable nature, with price fluctuations occurring often and being considerable in their scope. This means that it is crucial for investors to come up with strategies that can protect their portfolios and ensure they see more gains and revenue instead of losses. Here are some of the factors that can make a tremendous difference between a successful portfolio and one that is not doing very well.
The Fees
Digital assets are typically associated with lower transaction fees, and you can typically conduct cross-border trading without worrying about paying very steep fees in order to finalize the venture. However, crypto trading is nonetheless associated with several fees. Although they may seem incredibly small and inconsequential at the moment, they do add up over time, and you need to keep track of them as a result. Depending on the exchange you use and the services you require for your portfolio, the costs you will be expected to pay will be different. For example, some firms can charge 2% of your overall assets. Sounds like an incredibly tiny amount, right? However, depending on the volume of your ventures, it will be tens of thousands of dollars that accumulate in a decade or less just from those fees alone. What you need to minimize the effects of something like this happening is to actually keep track of the digital assets you use, as well as the associated fees that come with each of them. This way, you can keep them under control and make sure they don’t end up taking too much of your returns.
Duplication
Duplicate assets are holdings that either have the exact same identity or different identities but features that are similar enough that they can be considered virtually identical. This happens when a database table has the exact same name as another and they are hosted within the same schema, the visual and logical configuration of the relational database. Having the same columns and similar names can also cause duplication, even if the schemas or hosts are different.
These assets are typically handled through either merging or deletion. Most investors discover that they’ve fallen victim to duplication because they don’t realize that they already have their desired share of a specific holding. Your management system needs to make keeping track of the assets you own a simple, straightforward, and hassle-free endeavor so that you can check whether something is already part of your portfolio right away. This way, you guarantee that you’re not wasting your money and end up dealing with losses.
Balance First
Regardless of the type and value of the digital assets you want to include in your list of holdings, there is one characteristic whose importance you must never disregard: diversification. It’s easy for things to spiral out of control and for your portfolio to become skewed in favor of a particular asset, and while that may seem like a positive thing if the specific token is popular and has an elevated value, it can actually make your holdings more vulnerable and cause you to lose a lot of capital in the event of a devaluation or market failure. Your general risk tolerance and investment goals are two of the most important considerations you need to take into account when looking to rebalance your portfolio. So, if you’re not comfortable dealing with very steep price fluctuations, you shouldn’t approach lesser-known assets that will likely be subjected to much more intense volatility. Since it can be challenging to reorganize your assets later on and doing so is likely to cause significant expenses for you, the best plan is to try to keep this in mind from the very beginning and consider the effects and impact of every single holding you acquire on your overall portfolio. General consensus dictates that you need to check how much of your portfolio space is allocated to every single asset about twice a year and also the time a digital holding has shifted in value by a considerable margin. Typically, 5% is the standard benchmark, but you can personalize this level depending on your particular requirements.
The more diverse the list, the less likely you are to deal with massive losses, even if markets go a little lopsided. In a sense, diversification acts like a buffer, something that is very much needed in this market, which is known for its changeable nature. Over the last two years, crypto markets have been going sideways quite a lot, and even though gains followed the corrections as well, they have generally been followed by long periods of stagnation that have caused apprehension in investors unsure about what they should do next.
An Overview
The rise of digital assets has made them very attractive to investors worldwide who want to try and see for themselves if they can provide better value. However, the hype of dealing with them shouldn’t cause you to overlook the importance of managing your portfolio adequately in order to avoid significant losses. The first step in effective management is to understand the full scope and extent of everything you’re dealing with, so you need a comprehensive list of all your assets that lets you organize them. The next step is to establish whether you can keep all the assets well-balanced and fully optimized on your own or if you’ll need the assistance and guidance of experts, management companies, and platforms that can handle these things for you in exchange for a fee. If you’d rather go for the hands-on approach, you need to keep track of the age and associated fees and create a file naming system that can help you tell the difference between the holdings.
Being an investor can be quite tricky since there are so many things you need to keep in mind. This is precisely why having a system allows you to be more successful, as it eliminates some of the stress and uncertainties that come with managing a portfolio.