Sanakoev Letter 6

Hi Fellow Steemians,

I've noticed a lot of (crypto-)investors are wondering when to buy and when to sell. My advice is: do not attempt to time the market. Instead, use an allocation and rebalance regularly. For simplicity, let's say you believe the prospects of stocks, crypto, gold, and cash are all equally "good". In this case, you would invest 25% of your assets in each class. Let's say you own 400 USD, this would lead to the following allocation:

100 USD: Crypto

100 USD: Cash

100 USD: Stock

100 USD: Gold

This allocation means that you are willing to lose "at most" 100 USD in any given asset class. If you think crypto is more risky than cash, you would obviously not equal-weight them at 25% each. Now, assume your crypto-assets double in value in the next year:

200 USD: Crypto

100 USD: Cash

100 USD: Stock

100 USD: Gold

This means your allocation has changed to 40% crypto, 20% cash, 20% stock, 20% gold. If you still believe that your assets are all equally promising (= the original 4x25% allocation), then you should sell 75 USD worth of crypto, and use that to buy more of the other 3 asset classes:

125 USD: Crypto

125 USD: Cash

125 USD: Stock

125 USD: Gold

Conclusion: The amazing thing is that you have sold high and bought low automatically, without any emotions involved. If you have a cash flow available (paycheck, rich parents, ...), then you can rebalance by always buying the cheapest asset class (= the one that did not increase in value), thereby buying low at all times.

Note: you can also do this with only cryptocurrencies, assuming your choice of cryptos does not correlate too much. For example ethereum, lisk, waves, stratis, bitcoin, nxt (only using ETH and some ERC-20 tokens would move too much in unison to rebalance properly in my view).

Happy investing,

Sanakoev