As a crypto investor, you have to diversify to spread your risk. The question then is: How much Algorand should you buy?
You should buy no more Algorand than 20% of you total cryptocurrency portfolio is worth. This gives you adequate exposure to Algorand, without adding too much risk. However, this number depends on several factors.
Let’s get into the details, and calculate how much Algorand to buy:
How To Figure Out How Much Algorand To Buy:
To get the exact number of Algorand coins (ALGO) you should buy, you first need to figure out how much crypto in general you want to buy.
That you can figure out in this article:
How Much Cryptocurrency Should You Buy?
However, in this article, we’ll figure out the appropriate diversification in terms of percent of your total crypto holdings.
This depends on you risk tolerance.
Let’s say you love taking risks, then you should keep a larger percent of your portfolio in Algorand. If you like to play it safe, the opposite is true.
Let’s get more specific, and figure out your risk tolerance, and appropriate diversification:
How Much Algorand To Buy At Different Risk Tolerances:
To figure out your risk tolerance, you have to put yourself in hypothetical situations where you win or lose money.
For instance, imagine losing 50% of your capital. How does this make you feel?
Do you feel like your world is falling apart, and hear the hell hounds barking at your feet?
Then you risk tolerance is low.
If you feel a sense of motivation, due to the challenge of starting over, then you’re risk tolerance is high.
Try to drift into scenarios like this, and figure out your risk tolerance on a scale of 1-10.
If you’re just as excited by the thought of winning, as you are afraid of losing, you’re a 5. If you don’t mind losing at all, but jump through the roof when thinking about winning, you’re a ten.
Now, let’s decide how much Algorand to buy based on your risk tolerance:
As a rule of thumb, you shouldn’t let any cryptocurrency under the 10-15 largest on coinmarketcap.com be larger than twice that of your risk tolerance.
For example, if you’re a seven on the risk tolerance scale, you should not have more than 7% * 2 = 14% of your portfolio in Algorand, as Algorand is below the 10-15 largest cryptocurrencies.
This is what I recommend:
|Risk Tolerance (1-10)||Appropriate Diversification (Max)|
You can Exceed This In Time Specific Trades
The table above, showing how much Algorand to buy at specific risk tolerances, is only meant for long term investors.
If you want to trade Algorand, meaning to buy with the intention of selling in the short/mid term future for a profit, you can increase the percentages.
However, trading is not for everyone. You have to know what you’re doing, and be skilled in technical analysis to consistently execute successful trades.
If you are a trader, or interested in becoming one, sign up to my newsletter for weekly technical analysis on Bitcoin and Altcoins:
How To Figure Out The Exact Number Of Algorand Coins To Buy
Now that you have the percentage that Algorand should be of your total cryptocurrency portfolio, you only need to multiply the percentage with the total value of your crypto holdings.
Let me show you how:
Let’s pretend I have a crypto portfolio worth $10 000. Also, my risk tolerance is 5/10.
The maximum long-term diversification according to the table above is then 10% (2 * 5).
This means that I should not buy more than $1000 worth of Algorand.
However, my belief in Algorand is not that great. I, therefore choose to only diversify 7% of my portfolio into Algorand. That means that I should buy $700 worth of Algorand.
Now, to figure out the number of coins I should buy, I only need to divide the dollar amount by the current price:
At the time of writing, the price is $1.5 (Check current price). This means that I should buy:
10% diversification: $1000 / $1.5 = 667 ALGO
7% diversification: $700 / $1.5 = 467 ALGO
This way, I get enough exposure to benefit from the potential positive price moves, without adding too much risk to my overall portfolio.
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