The Benefits of Diversifying Your Portfolio With Bitcoin
It would be an understatement to say that the past few years have been tumultuous financially, testing the mettle of many investors.
As any good investor knows, periods like this could and should be seen as huge investment opportunities – and those with a long-term viewpoint can see this moment for the possibility it really is.
Of course, managing a strong and advantageous portfolio during this difficult time is a challenge, and you’ll need to employ the right strategies to best make use of the moment.
You’ll need to take advantage of the benefits of diversifying your portfolio with investments in various areas. This includes investing in a cryptocurrency such as bitcoin.
What are the benefits of diversifying your portfolio with something like bitcoin? Why should it be an essential part of all investor’s holdings? Read on and we’ll walk you through what you need to know.
Why Have a Diverse Portfolio?
All investment has a degree of risk to it. When you invest, you take the chance of losing some value in order to chase the possibility of increased value. A smart investor understands this and takes steps to try and protect themselves from the risk of loss.
Of all the risk mitigation techniques an investor can use, diversification is likely the most common and the most useful. This technique reduces risks by allocating investments across various financial instruments, industries, and so forth.
The thinking behind this practice is that these different instruments and industries will react differently to world events. If something happened that caused the dollar to fall, the price of precious metals and cryptocurrencies would likely rise.
In this way, an investor would protect their value by always having some investments rise when others fell. While this investment strategy does not necessarily eliminate risk entirely, it can help to bolster and stabilize an investor and help them reach long-term goals over many years.
Diversification is especially important for older investors. Younger investors may be able to weather the ebbs and flows of the market easier.
However, an investor that is approaching retirement will need to protect their wealth so as not to lose it right before the moment it is needed most. The older you get, the more diversified your portfolio should really become, so as better to safeguard what you’ve built.
Forms of Diversification
There are many ways to diversify your portfolio. Even when investing in the stock market alone, you can ensure you’re investing in diverse stocks.
For example, if you invested in a few stocks that were related to the airline business, you might also want to invest in a few train company stocks. This way, if the airliners took a dive, the train-based stocks would likely rise in comparison.
Ideally, the market is bustling and all of your stocks are growing together at the same time. However, a dip is an inevitability for all stocks at some point, and preparing for this moment is what smart investors do.
Investing across multiple industries (travel, tech, health, etc.) can help protect you even when a certain industry might be facing a major challenge.
Of course, the most important kind of diversification might take place outside of the stock market entirely. A real diversified portfolio will contain different kinds of asset classes entirely.
These could be real estate, commodities, precious metals, and now with the advance of technologies – cryptocurrencies. All of these assets are not tied directly to the value of the dollar, and thus are independent of changes that might be happening at a federal or global level.
Investing in a different kind of asset class can be a huge aid to any kind of portfolio. Investing in a cryptocurrency like Bitcoin can be particularly helpful.
Benefits of Crypto Investing
A decade ago, cryptocurrency was a niche topic. It wasn’t something that had yet been understood or accepted by the mainstream.
Today, that’s all changed – pretty much everyone in the world knows crypto and bitcoin, and this knowledge is the main key to bitcoin’s value.
Bitcoin and all cryptocurrencies, as you likely already know, are decentralized forms of currency. They are not tied to any large financial institution or world government. They have value, like all currencies, because enough people have tied value to them.
Bitcoin and other forms of crypto, therefore, can not be easily affected or tampered with by large banks, world governments, and other such entities. For this reason, an investment in crypto has long been seen as an alternative to the power of the dollar.
When confidence in the US market falls, investment in bitcoin and other cryptocurrencies rises. Many who believe strongly in crypto believe that it could one day replace the dollar and other government-tied currencies, uniting the world under one global currency.
While this is obviously impossible to predict, it does make a good argument for why crypto is a worthwhile investment.
Much like precious metal investing, it provides an alternative investment asset that will react differently to world events than your standard stocks and bonds.
Bitcoin as a Diversification Tool
It likely wouldn’t be wise to invest all your money in bitcoin and pull it out of your other assets. The bitcoin world is still developing, and the market is often volatile and uncertain.
However, having a small-to-medium percentage of your portfolio invested in bitcoin can be a very smart move. This will allow you to weather the changes in other parts of your portfolio more easily.
Why bitcoin specifically? While there are now hundreds of different cryptocurrencies out there, most people would argue that Bitcoin still is the proverbial big kid on the block.
It was the first cryptocurrency to take off and thus the one that most people are aware of. As you may have guessed, awareness is a huge part of how a cryptocurrency functions. The more people that are aware of and invest in bitcoin, the more the value will rise and the more it will become entrenched in our global culture.
While other cryptocurrencies may offer certain benefits, there’s always the chance they will slide away and disappear should Bitcoin be able to assert true dominance.
For this reason, the smart and more cautious investor would likely keep their money invested in Bitcoin as opposed to any other form of crypto investing. It’s just a more sure bet.
If you’re feeling like a risk taker, another form of crypto might be helpful to fill that need – but you’ll be placing yourself in a potentially volatile position. That’s a different goal at the end of the day than what diversifying is all about.
A Hedge Against Inflation
The other benefit of diversifying your portfolio with an investment in bitcoin? It can help to protect your investments against the rising tide of inflation.
Bitcoin has a hard cap on the number of coins that will ever be brought into digital circulation. That means there is no possibility for unlimited growth in the world of bitcoin.
As the growth of the dollar continues to increase and outpaces the growth of new bitcoin, the existing bitcoin should continue to increase in value instead of falling.
If you’re like many Americans, you’re already feeling the squeeze of inflation that’s resulted from the COVID-19 years. An investment in bitcoin is a way to fight back against this rising tide of prices and costs, and a perfect way to strengthen your portfolio against falling values.
Other cryptocurrencies besides Bitcoin have begun to adopt the philosophy of an ultimate cap – because it creates a value that’s undeniable.
Bitcoin is still the primary adopter of this method and it’s just another great reason why it’s still the very best form of crypto to invest in.
Additional Bitcoin Benefits
Of course, even bitcoin is somewhat volatile, and there are potentially other benefits you can enjoy as a bitcoin investor.
On top of providing a counter to the power of the dollar, a bitcoin investment can bolster your personal finance in a number of ways.
Transaction Speeds Are High
Liquidity in your investment assets is always a huge help to an investor, and bitcoin is as quick as can be. As you’re likely aware, it can take up to a few days to transfer money to another individual through most traditional channels.
Cryptocurrency is leagues faster than any other kind of financial transfer. Instead of waiting for two or three days for a transfer to go through, a cryptocurrency-based transaction can occur within a few minutes.
As soon as the transaction is confirmed on the blockchain, the cryptocurrency value is available and ready to be used. This can speed up your working process quite a bit.
In addition, you don’t have to worry about the transaction costs that are often associated with this kind of transfer.
Sick of paying a percentage every time you want to do a wire transfer of some kind? You won’t find any of these kinds of fees if you’re looking into a crypto-based transfer.
Easy to Access Your Funds
The record of cryptocurrency is kept on the blockchain, which is a public ledger shared across hundreds of thousands of different computers. The benefit of this kind of accounting system is that your money is always available, anywhere and anytime.
All you need is a digital device in order to access it – but you can do so anywhere and on nearly any device in the world.
Even the process of setting up an online cryptocurrency wallet is easier and more accessible than nearly any sort of bank account. If you’re looking to diversify your portfolio with bitcoin, you’ll have a much easier time getting set up than you would with nearly any other kind of investment.
There are even bitcoin ATMs cropping up around the world that allow easy and quick access to your funds – it’s worth trying to learn more about if you’re interested.
Privacy in Investment
Another major advantage of investing in a cryptocurrency like Bitcoin? You don’t have to register or make an account at a standard financial institution.
With bitcoin, you can maintain a level of overall privacy that would be unheard of at a normal institution.
All transactions on the blockchain can occur under anonymous or pseudonymous titles, which means no one can necessarily track how you’re spending and investing your crypto online.
While someone might be able to trace transactions back to the ID of your crypto wallet, they shouldn’t be able to find any personal information about you from here.
If you’re someone who would prefer the government and other such entities to keep away from your investing business, the world of crypto offers a lot of benefits worth considering. In a world more interested in online privacy, this can be a huge reason to consider a bitcoin investment.
Understanding the Benefits of Diversifying With Bitcoin
It’s an increasingly complicated world, and it’s hard to determine how best to look out for yourself and your loved ones in financial terms. If you’re looking to build a strong and stable future for your portfolio, looking into cryptocurrencies like bitcoin can be a huge help.
There are so many benefits of diversifying a portfolio with bitcoin, and the above can help you understand why this might be a smart decision for you or other financially-minded people in your life.
The future of Bitcoin is still being written, and there’s still time to get in on this exciting ground floor of the future of currency.
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