The world has seen significant transformation in the last decade and technology has contributed immensely to this change. The world of finance, too, has been disrupted by the growing interest and excitement surrounding cryptocurrencies. This revolution started with Bitcoin, which was created by an anonymous person called Satoshi Nakamoto who sought answers to these important questions.
- Do we really need intermediaries to handle our money?
- Are traditional assets the only way I can generate wealth long-term?
- How do I split my investments between traditional assets and cryptocurrencies?
Over the last few years, cryptocurrencies have proven the answer to the first 2 questions to be a resounding “No”. However, the third question still persists. How should one split their investments? Many new and some experienced investors struggle with making monthly crypto investments a part of their investment strategy. This article is a practical guide that will assist you in building an effective and informed strategy for monthly crypto investments.
Do we really need to optimize monthly crypto investments?
Think of an investment strategy as a fisherman’s boat. On good days, the boat helps the fisherman get a good catch and on other days, the boat can help the fisherman ferry people across. A solid investment strategy ensures you can similarly ride the market highs and mitigate risks during market lows. By systematically accounting for all related factors, investors can enhance their chances of success in the crypto market.
Understanding Your Financial Situation
Before beginning to build a strategy, understanding your financial circumstances is crucial.
- Start by assessing your income, expenditures, outstanding debts, and available savings. This will help you get a realistic overview of how much you can actually spend. Remember not to miss out on accounting for emergencies that may occur.
Next, define your investment goals. Some questions which may help you with this are listed below.
- Why you are investing?
- How long do you plan to invest?
- What are you investing for?
Assess the risk you are comfortable with. This risk could be any uncertainty associated with your investments that could negatively impact them. You can be an aggressive risk seeker, a moderate-risk seeker, or someone more conservative and wary of risks.
This comprehensive evaluation will provide a clear picture of your financial confidence and health. It will, then, help you determine how much of your income you can comfortably allocate to monthly crypto investments.
Setting a Realistic Budget
To balance your financial stability and investment objectives, developing a well-structured budget is crucial. A commonly recommended framework is the 50/30/20, which encourages you to allocate 50% of your income towards your needs, 30% towards your wants, and 20% towards saving up. This way, your short-term commitments aren’t compromised while you work towards achieving long-term financial growth.
Exploring Investment Amounts
Let’s face it – you already knew we would not tell you to invest $ABC monthly. However, here are the best approaches to deciding on your monthly investment.
- You could choose to go the percentage-based way, where you invest a consistent portion of your income. This approach automatically adapts to changes in your income, ensuring that your investment remains proportional.
On the other hand, committing to a fixed monthly amount (often through an SIP) fosters discipline and consistency in your investment routine. As your income grows over time, scaling your investments proportionally maintains a balanced approach to wealth accumulation.
- Choosing a Coin
Choosing the right cryptocurrency for investment involves a comprehensive evaluation of all your options. There are over 9000 cryptocurrencies available in the market. Ideally, you should acquaint yourself with at least the top 50 coins by market cap. You can then read into the utility value of different cryptocurrencies, their market capitalization (market price x circulating supply), and the details of their tokenomics to determine which coins have potential. Staying updated with the latest developments is essential to make the right investment.
Picking a strategy
Now that you know your risk appetite, goals, and how much you can spend, you need to decide how you spend it. Hold on, we aren’t talking about shopping but rather choosing between investing lump sum or setting up an SIP in cryptocurrencies.
Lump sum investing involves investing a significant amount in one go. For a short-term investment, going the lump sum route might make more sense. However, this is not without risks, as your investment is vulnerable to market volatility.
BuyUcoin, India’s oldest cryptocurrency exchange, has introduced a Systematic Crypto Investment Plan (SCIP) for the investors with the option to choose from 10 crypto assets. The SCIPs are available in bundled plans that distribute the investment among crypto-assets such as Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Chainlink (LINK), Dogecoin (DOGE), and Bundled Crypto Assets.
Setting up an SIP, or a systematic investment plan, in crypto is often lauded as the smart choice and is preferred by long-term investors. An SIP involves investing a fixed amount regularly in cryptocurrencies of your choice, regardless of market volatility. This way, your investment costs average out over time. Many crypto investment platforms enable you to set up automatic SIPs in coins of your choice. BuyUcoin has experts who curate and manage thematic crypto baskets, including a collection of coins called Coin Sets in which you could invest. This way, you cut down on your research time and benefit from the growth of an entire theme within the crypto market.
A balanced strategy combines these two approaches, utilizing an SIP in crypto to mitigate market timing risk while taking advantage of potential market opportunities with lump sum investments.
Risk Management and Diversification
Here is where most people give up. We know you won’t! Smart investors like you know how to diversify and manage risk effectively. Given the inherent volatility of the crypto market, effective risk management through diversification is necessary. For example, with Mudrex’s Coin Sets, you diversify your portfolio in a set of crypto coins while mitigating the overall risk.
By effectively managing risk and diversifying your holdings, you eliminate putting all your eggs in one basket. Furthermore, achieving a balance between your crypto investments and traditional assets is important to stay financially healthy. A diversified portfolio with a healthy mix of traditional assets and cryptocurrencies can help mitigate risk while capitalizing on growth opportunities in different sectors.
Reassess and Adjust Over Time
The crypto market is active 24/7, and periodic reassessment and adjustment of your investment strategy is almost mandatory. Regular reviews of your investments help you stay updated and better positioned to react to market trends. Don’t be discouraged if you don’t have the time or resources to do this. BuyUcoin Coin Sets may be a great way for you to keep your investment plans going, as they are rebalanced every month to keep up with evolving market conditions.
Case Studies, Tools, and Experts
Consider learning from the experiences of others. It could be a valuable resource when crafting your investment strategy. Online tools and calculators like the BuyUcoin SIP calculator for Coin Sets can help you forecast or at least get an idea of the potential growth of your investment. You can also choose to explore case studies of different investors to get advice or consult financial experts for a more informed perspective.
Making monthly crypto investments is easy. What is hard is bringing together consistency, informed decision-making, and your commitment to aligning your investments with your individual financial aspirations. Disciplined investing is the way to navigate the volatility of the crypto market towards long-term wealth generation.