A famous crypto debate that you will often hear is should you have a highly-concentrated portfolio; focusing on just a few coins. Or, should you have a well-diversified portfolio with many coins. There are both positives and negatives to both, and what is right for me or someone else, may not be right for you. I often receive the question of; "How many coins should I be investing in?" Or "please look at my portfolio and tell me what you think." Many times I will see that this person has invested into 20 or more coins. But is that the right approach? Let's talk about this more.
As I just mentioned before; each person will have their own preference and appetite for risk and that will greatly affect how they should make decisions while investing. Everyone knows that if you have a higher-concentrated portfolio, then you also have a greater opportunity to make larger profits. But at the same time, there is a larger chance that you may miss out on other coins going up in value. Do you want to go after the larger gains, or do you want to have a higher chance to have a coin that appreciates in value. That is something that everyone in crypto needs to ask themselves. Not only in crypto, but also in the general investing world as well.
I'm a firm believer that where you are in your crypto journey should greatly affect which investing strategy is better for you. For someone who is just starting out and investing a small amount of money; you would be much better off having a higher concentrated portfolio. If you are investing only a few hundred dollars, but that is split up among several coins. Even if those coins go up, you will not have that much in profits. At this point, you would be better off putting your money in one or two coins to have higher-concentrated gains. I think that remains true even until you have several thousands worth of dollars invested into the market. Not only will you see higher gains, but it also helps you to accumulate much faster. If you are investing just a few hundred dollars a month into crypto, but that it split up among 10+ coins. You will be buying a lot of nothing. On the other hand, if you were to put that into just 1 or 2 coins, you will then start to build that up to significant holdings if you continue to do so for a nice duration of time. This has been my approach exactly since I have gotten into the market. For several years I focused only on accumulating bitcoin and ethereum. You want to build a foundation to your portfolio that you can count on. Thankfully I have been very lucky and have grown a very nice portfolio. I attribute that mostly to the strategy above. In fact, it was only recently that I decided to finally start my 3rd and 4th pillars of my portfolio by adding two new coins. The coins that I decided to add were Polkadot and Solana. Both of which I had been investing hard into during the summer price dips. It took me years until I felt comfortable enough with my bitcoin and ethereum holdings to branch out to different coins. If you have been following me for a decent length of time, you will know that one of my greatest crypto passions is being able to have my crypto work for me and earn a passive income. By having a larger concentrated portfolio, this also helps to maximize the amount of passive income that you will be able to earn. Then compounding it on a monthly basis while still adding to it with spot purchases; you will be amazed at just how quickly your portfolio can grow.
Now on the other hand, why would it be better to have a diversified portfolio? There are many reasons for this as well. It has always been thought that having a well-diversified portfolio would help shield you from risk. At the current moment I don't think that is true in the cryptocurrency market. After all, everything pretty much moves exactly how bitcoin moves. Actually altcoins tend to drop much more when bitcoin is also dropping. But this brings us to the real reason that entices so many people to diversify their portfolio. And that reason is that altcoins tend to go up much faster in percentage when compared to bitcoin. There are several people who want bitcoin or ethereum, but think that they are already too expensive. Therefore, they buy these other coins hoping that they will go up and eventually convert them to either bitcoin or ethereum. That is a great strategy if you are able to time it right. Even I have done this in the past myself. I got into Cardano at $0.03, and also got into Polkadot (the 1st time) when it was $2.80. I would later convert those to both bitcoin and ethereum after they went up significantly. For a lot of people, investing into cryptocurrency is like buying a lottery ticket. There are regular stories of coins doing 100x, 500x and even 1,000x or more. If you were to get lucky and put a decent amount of money into one of these coins, it could completely change your life forever. This are the reason Dogecoin and Shiba Inc became so popular, along with all the other dog coin hype. But this isn't just a lottery. There are in fact many great projects out there. After all, I did reinvest into Polkadot this year. Just think if you had gotten into Solana when it was $3 at the beginning of the year. Those are the kind of gains that we all dream of. Best yet, it is a project that potentially has a great future ahead of it. If you put in the research and find fantastic projects, I highly recommend investing into them. But always remember that the cryptocurrency market is very young. Look around at the top 100 market cap coins today, in ten years a large majority of them will be gone. By diversifying your portfolio, you do increase your odds at having a coin that sees great appreciation or goes parabolic.
Even today, this is a debate that I am always having in my own head. Which approach is better? Personally I like the higher-concentrated approach more. I like that it allows me to accumulate faster and also receive higher passive income and gains. In fact, I didn't start thinking about diversifying past bitcoin and ethereum until my portfolio hit well over $100k. So what is the right about of coins to have? That all depends on you. But, it should definitely be a number that you are able to keep up to date on all of them. If you find it overwhelming and aren't able to do that, then you have too many coins. Right now I only have 4 coins in my portfolio, but I am always on the hunt looking for the next great opportunity. That is the most important thing. No matter which approach you end up deciding to do, you always need to keep an open mind and look outwards for the next great opportunity. If you aren't looking you will definitely never find it.
How about you? How many coins do you think a crypto portfolio should have? Do you prefer highly-concentrated or highly diversified portfolios?
As always, thank you for reading!