We all know this famous proverb that says : don't put all your eggs in one basket.
But how can we apply this one to the finance and especially digital assets?
This diversification of digital assets is a known technique that reduce risk by allocating investments across various cryptos categories for example.
The main aim of the diversification is to protect against losses. By diversifying your investment portfolio, you spread the risk too in the same time.
Another benefit of the diversification to increase the risk-adjusted returns of a portfolio. This means investors earn greater returns when you factor in the risk they are taking. Investors may be more likely to make more money through riskier investments, but a risk-adjusted return is usually a measurement of efficiency to see how well an investor's capital is being deployed.
By diversifying your digital assets portfolio it can create better opportunities. For example, you only own drivers crypto (Bitcoin and Ethereum) and nothing else, with a diversification of your portfolio you might discover new opportunities such as NFTs and Metaverse universe.
To summarize, diversify your digital assets portfolio presents the following advantages :
- Attempts to reduce risk across a portfolio.
- Potentially increases the risk-adjusted rate of return for an investor.
- Preserves capital, especially for investors with a low risk appetite.
- May garner better investing opportunities due to wider investing exposure.
- May cause investing to be more fun and enjoyable should investors like researching new opportunities.