The primary goal of reallocation is to minimize risk and increase long-term profits. A portfolio’s asset allocation is a major factor of the portfolio’s risk-and-return ratio. The problem (and benefit) of having a diversified portfolio is that over time your various holdings will produce different returns, or losses, so the allocation changes. Because of this fact, it is effective to revisit your portfolio from time to time and make the proper adjustments to bring it back into alignment with your original allocation percentages and risk-reward ratio.
This will not only help the overall returns of your portfolio and minimize risk; it will also help to re-balance your mind, allowing you to reevaluate each of your holdings to insure that they are still a proper fit and that they are still performing as they should.
Stick To The Overall Goal
The idea is to stick to a long-term plan tailored to the goals that you set when you created your portfolio. Deciding when to re-balance is a judgment call that can vary with the circumstances, allowing for a wider diversion from your goals in some cases and a narrower one in others. No one can say for sure how often re-balancing should occur, or how big the variance should be before re-balancing.
Don’t Let Emotion Get The Best Of You
Since re-balancing often requires selling a successful holding to buy another, it can pay to reexamine what you have – and what you could have. This way you don’t sell a winner that’s still promising or buy an asset that will keep going down.
Always ask yourself, “Would I still buy it today?”, regardless of how it has done in the past. If the answer is yes, keep it. If not, it is probably best to diversify that holding into another coin that is more promising.
Don’t Try To Be Perfect
Too often, re-balancing can force you to make a change on Monday only to reverse it on Tuesday as the markets fluctuate, eroding your holdings through fees. It is important to remember that reallocation will never be perfect, and it is ok for each holding to be a few percentages or dollars off from the exact allocation goal.
Even though re-balancing is necessary to maintain your portfolio, it’s best to use techniques that minimize the fees associated with each transaction. For instance, try to make as many of your transactions from one single exchange as possible to avoid incurring unnecessary fees. Don’t sell your coins on one exchange and buy a different coin on a different one if both coins are listed on a given exchange.
Likewise, it is a good idea to check the exchange rate of the coins you are reallocating or adding to your portfolio at each of the exchanges to make sure you are getting the best price possible when buying and selling.
As long as your portfolio as a whole satisfies your overall asset allocation goal, it may not be necessary for every holding to be allocated the same. You may want to have a larger portion of bigger coins like Bitcoin, Dash, or Ether if your goal is more conservative. Likewise, if your goal is to seek higher returns from your portfolio in exchange for higher risk, than you will likely hold more ICO tokens or other altcoins that have a smaller market cap.
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