Coming up with your allocation strategy
Now that you are beginning to get an idea of your risk tolerance, time availability, and conviction levels, we can look at a portfolio allocation strategy.
What this basically is, is a rough breakdown of what % of your portfolio you wish to have in what asset / asset classes. This is naturally going to fluctuate regularly as the markets change, but the idea is that, once a month, you look at this and try to “re-allocate” yourself back to the levels you laid out in your strategy.
Here’s an example. Let’s say you have a medium risk tolerance, and are comfortable having 20% of your Net Worth in crypto, and your net worth is currently $100k. That means you have $20k to allocate to your crypto portfolio.
Okay, great. How do we break that down within crypto? There are once again a few paths you can take here, depending on risk tolerance, and the exact specifics aren’t important other than you have a strategy and you stick with it. I’ve put together a sample conservative, moderate, and aggressive option for a portfolio allocation strategy, but you can (and should) have a think about this for yourself and come up with your own.
| CONSERVATIVE | Percentage | Starting Value |
|---|---|---|
| Bitcoin | 50% | $10,000 |
| Ether | 30% | $6,000 |
| Alt Coins | 10% | $2,000 |
| Meme Coins | 5% | $1,000 |
| NFTs | 5% | $1,000 |
| MODERATE | Percentage | Starting Value |
|---|---|---|
| Bitcoin | 20% | $4,000 |
| Ether | 20% | $4,000 |
| Alt Coins | 20% | $4,000 |
| Meme Coins | 20% | $4,000 |
| NFTs | 20% | $4,000 |
| AGGRESSIVE | Percentage | Starting Value |
|---|---|---|
| Bitcoin | 0% | $0 |
| Ether | 10% | $2,000 |
| Alt Coins | 20% | $4,000 |
| Meme Coins | 40% | $8,000 |
| NFTs | 30% | $6,000 |
You can come up with any sort of distribution here. You could go 100% meme coins, you could go 80% Solana, you could go 50% gaming coins, you can go 50% Bitcoin and 50% Ether, you can break it down in a lot of different ways, depending on your risk appetite and the areas you have the most conviction in. If you’re a Bitcoin maxi your portfolio is going to look a lot different than if you’re super bullish on Solana, or generative art NFTs.
Obviously some asset classes are more risky than others, I don’t need to tell you this.
The important part is to have a clear strategy, to write it down, to look at it, and to reflect upon it at regular bases to rebalance your portfolio.
Why is this important? Because crypto prices are volatile! They can change extremely quickly, and if you are not regularly reviewing your portfolio, what once started out as a reasonable distribution could become extremely skewed.
Imagine that things get a little crazy and prices pump across the board, including some meme coins and NFTs you bought with a small portion of your portfolio. All of a sudden a conservative portfolio can start to look VERY aggressive and risky!
| CONSERVATIVE | Starting Value | Percentage | Current Value | Percentage |
|---|---|---|---|---|
| Bitcoin | $10,000 | 50% | $12,000 | 17.8% |
| Ether | $6,000 | 30% | $8,500 | 12.6% |
| Alt Coins | $2,000 | 10% | $5,500 | 8.1% |
| Meme Coins | $1,000 | 5% | $30,000 | 44.44% |
| NFTs | $1,000 | 5% | $12,000 | 17.8% |
| Total | $20,000 | 100% | $67,500 | 100% |
Simply by holding, we’ve gone from having 10% of our portfolio ins NFTs and Meme Coins to over 60%!
If you’re thinking “ah that’s crazy, that would never happen”… well, I am here to tell you that this certainly can and does happen, all the time. That’s part of what makes crypto so crazy - the ability for small amounts of money to turn into huge amounts. The mistake a lot of people make, myself included a lot of the time, is to not keep an eye on their portfolio distribution on a regular basis.
My solution to this is simple: set a recurring reminder in your calendar and set aside 30 minutes to check out how your portfolio is looking. It doesn’t take a lot of time, and it will pay off tremendous dividends over the long run.
This brings us to the end of Module 1. You should now have a strategy in place, you should have an idea of what your ideal portfolio allocation looks like (this can always change), and you are probably better prepared than 95% of people for this market cycle.
Future modules will include sections on: