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The world of DeFi investments, while alluring at first glance, requires individuals to implement careful planning alongside a well-defined strategy. However, before diving into the intricacies of portfolio construction, it’s crucial to lay a solid foundation by addressing a series of fundamental questions.
These questions can help investors clarify their existing financial situation, objectives, and investment beliefs, ultimately guiding them toward creating a tailored portfolio that aligns with their goals and risk tolerance levels. To achieve this, first step is for a person to take a look at their assets and reflect on the following:
Before diving into investment specifics, it’s important to explore a series of pivotal questions. These can help investors gain a better understanding of their finances, ultimately crafting a portfolio that resonates with their goals and risk tolerance. The process involves an evaluation of one’s investment objectives and aspirations, including questions like:
What are my expectations from my investments, and how much money am I looking to accumulate through them?
It is important for individuals to determine whether their interest is purely driven by financial gain or whether they intend to enrich their knowledge and expertise as well. Determining precise financial objectives can be essential for tracking progress and refining one’s strategies over time.
What is my timeline for achieving these objectives? What level of risk am I comfortable undertaking?
Investors need to assess whether they are seeking immediate returns or are more focused on building long-term wealth. Additionally, they should consider how much time and effort they can realistically commit to managing their DeFi investments.
Due to the dynamic nature of the DeFi market, active involvement and continuous adjustment are crucial for effective portfolio allocation, alongside a clear understanding of risk tolerance.
Individuals navigating the DeFi ecosystem need to possess certain investment beliefs that can help guide them during the good times and the bad. For instance, recognizing that higher returns typically come with higher risks is crucial since this belief guides a person in risk assessment and balancing their portfolio to match their risk tolerance.
If an investor believes that Ethereum (ETH) will outperform Bitcoin (BTC) during a particular investment cycle, the thought influences their asset allocation and trading strategies, directing more capital towards ETH based on their market outlook. Believing in the growth potential of specific sectors, such as the RWA sector, can lead an individual to invest more heavily in related cryptocurrencies or technologies, anticipating future gains from sector-specific growth.
These core beliefs are not static. They require regular evaluation against market performance and personal investment outcomes, making adaptability key to refining strategies and beliefs over time. Moreover, defining a planning horizon for each belief is essential.
For instance, an investor who believes Ethereum will outperform Bitcoin in the next 2-3 years should tailor their strategies to reflect this timeframe. This might involve holding Ethereum positions longer despite volatility or strategically increasing holdings when prices are favorable.
Building on the idea of Ethereum’s potential, an investor’s strategy could involve several steps. First, they can use market analysis and price movements to identify optimal buying opportunities for ETH. Second, they should determine an appropriate allocation for ETH within their portfolio, balancing risk tolerance with potential rewards. Finally, staying informed about market developments that significantly impact Ethereum, such as regulatory changes or technological advancements, is crucial for successful long-term investment.
By thoroughly defining their goals and establishing their investment beliefs, investors can lay the groundwork for creating a tailored DeFi investment portfolio using Rivo platform. It bridges the gap between the complex DeFi landscape and retail audiences interested in generating passive income.
Rivo Yield Marketplace empowers investors to access a diverse range of DeFi earning strategies through its user-friendly interface and comprehensive information. Users can seamlessly research various strategies based on descriptions tailored to their risk tolerance or investment goals, including annual percentage yields (APYs), pros and cons, risks, and audits. This enables them to make informed decisions and tailor their portfolios to their specific goals
For instance, users can dive into the details of each ETH-centric earning strategy on offer, analyzing the comprehensive information provided on each asset card, including descriptions, annual percentage yields (APYs), pros and cons, risk assessments, and audit clearances.
As can be seen from the image below, by selecting ETH-based strategies, users are presented with options such as Pendle eETH LP, Gearbox ETH Lending, weETH Lending Market, wstETH Boosted Lending Vault and others.
Similarly, for more stablecoin-centric strategies, users can choose between options like Gearbox USDC, MIM Liquidity Pool, LUSD Lending Market, and crvUSDT Stablecoin Lending Pool, among several others. Lastly, for altcoin-based strategies, users can choose from RDNT/WETH Liquidity Pool, SNX/USDCe Liquidity Pool, GMX Staking, etc.
Once investors have identified a strategy that resonates with their beliefs and goals, they can seamlessly allocate their capital and enable notifications to stay updated on their performance. Adopting a practice of regular portfolio reviews, perhaps weekly, can also prove invaluable. In this regard, people should continuously ask themselves key questions like:
This iterative process of reevaluation and adjustment can be crucial for optimizing one’s portfolio performance and ensuring alignment with their evolving market outlook.
To illustrate the range of investment approaches available on Rivo, user can start by choosing one of three distinct portfolio types: ‘Conservative,’ ‘Balanced,’ and ‘Risky.’ The primary differentiator between them lies in their volatility levels, which then dictates the extent to which they react to market fluctuations.
Such a portfolio is composed of blue-chip assets such as Bitcoin (BTC) and Ethereum (ETH), alongside stablecoins, maintained at a specific percentage ratio — a common base allocation being 20% BTC, 30% ETH, and 50% stablecoins. This ratio is dynamically adjusted through a process called ‘rebalancing,’ which responds to the market’s ongoing growth or decline.
To elaborate, portfolio rebalancing serves as a crucial risk management strategy where investors can adjust their asset allocation in an effort to maintain their desired risk levels and investment goals. This adjustment can be triggered on a regular schedule (calendar-based) or when the asset allocation falls outside the established risk threshold.
As an example, say if the market experiences an upswing and an investor’s initial 20% BTC, 30% ETH, and 50% stablecoins allocation shifts, the portfolio would be rebalanced to, say, 15% BTC, 25% ETH, and 60% stablecoins. Conversely, during market downturns, the strategy involves buying more BTC and ETH, potentially adjusting to an allocation like 25% BTC, 35% ETH, and 40% stablecoins.
The key advantages of this approach include time-resistant income stability and effective risk diversification. In fact, users can also follow additional guidelines to optimize their strategies. These include:
Such a portfolio consists primarily of blue chip assets, altcoins, and stablecoins using a strategic allocation setup. A common ratio for this approach is 20% BTC, 20% ETH, 30% stablecoins, and 30% altcoins. Similar to a conservative portfolio, this allocation is adjusted in response to market movements, with the key difference being that rebalancing primarily focuses on the 30% altcoin portion of the portfolio.
When adopting such a strategy, users need to dedicate ample time to thoroughly researching their chosen altcoin projects. One should only invest in strategies they genuinely understand, as a lack of knowledge could increase their risk exposure.
Moreover, diversifying one’s altcoin exposure across multiple sectors can be used to mitigate sector-specific risks. Investors should ideally avoid concentrating on a single sector (like meme-coins, NFTs, etc) as it could leave them vulnerable to sector-wide disruptions. Lastly, it would be advisable to divide one’s allocation across various segments, such as Layer 1 (L1) tokens, decentralized exchange (DEX) governance tokens, real-world assets (RWA), lending, and staking.
A risky portfolio is primarily composed of altcoins, with an emphasis on capitalizing on emerging market trends and offering maximum potential returns. A typical allocation for this approach might be 10% BTC, 10% ETH, 20% stablecoins, and a substantial 60% dedicated to altcoins.
Similar to the other portfolio types, this allocation is adjusted in response to market movements, with rebalancing occurring within the 60% altcoin segment to capture high-potential, trending opportunities. As is obvious, this aggressive strategy is primarily well-suited for users prepared to dedicate significant time and effort to researching market trends and vetting project fundamentals.
It also offers limited rebalancing opportunities due to the maximum market exposure inherent in the 60% altcoin allocation. That said, no matter which portfolio type an investor may gravitate towards, Rivo’s Yield Marketplace streamlines the process of building, monitoring, and optimizing your DeFi investment strategy according to your individual goals and risk parameters.
While creating and maintaining an investment portfolio through Rivo’s Yield Marketplace, it’s essential to adopt certain best practices to ensure optimal performance and alignment with one’s financial goals. For example, users can regularly review and adjust their portfolio allocations based on evolving market conditions and their personal risk tolerance levels. Periodic rebalancing can help mitigate potential risks and capitalize on emerging opportunities.
Secondly, individuals should stay informed about the latest trends and developments permeating the crypto market. They should ideally follow only reputable media sources while also attending industry events to engage with the community at large and expand their knowledge base.
Lastly, investors could consider learning and implementing a dollar-cost averaging (DCA) strategy to manage their portfolios over time. DCA involves investing a fixed amount at regular intervals, regardless of market conditions, allowing for the mitigation of volatility and potentially reducing the overall risk associated with lump-sum investments.
While the DeFi ecosystem remains primed to keep growing in the near to mid-term, with the sector primed to reach a valuation of $398.77 billion by 2031, it’s crucial to understand that the information provided here should be used as a general guide and not specific investment advice. Cryptocurrencies and DeFi investments are inherently volatile and risky; therefore, before making any major investment decisions, it is strongly recommended that individuals conduct thorough research and clearly understand the risks involved with their decisions.
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