Why diversification matters in SMSFs?
Nowadays, cryptocurrencies are getting more appealing to self-managed super funds (SMSF) as they are observed as an alternative to more traditional stores of value. However, when talking about setting up your portfolio with crypto, experts advise sticking to the most common cryptos such as Bitcoin and Ethereum.
According to one of the most famous financial advisors, Suze Orman, you should consider crypto a high-risk asset class in your portfolio but it shouldn’t exceed 5%. Because of the considerable volatility of cryptocurrencies, you have to ensure you are okay with the insecurity that comes along. Orman has an even more straightforward way to explain the percentage of crypto in your portfolio: “It depends on how much money you are willing to lose.”
Be it as it may, there are certain essential things one should follow in order to maximally protect investments.
One of them is diversification. According to the Australian Taxation Office (ATO), one needs to "have regard for diversification" with the SMSF investment strategy. A few years ago, the ATO sent, written precautions to numerous SMSFs claiming approximately 90% of their assets were in only one asset (usually real estate but a small number held crypto as well).
The thing is, when your portfolio is comprised mostly (and especially if it’s over 90%) of one type of asset, the auditors become suspicious and start asking some complicated-to-answer questions and they’re more likely to put you on the ATO’s radar.
Also, recent study by the University of Adelaide showed SMSFs that invested in four or more types of assets had the overall better performance. The point is that if you don’t diversify your portfolio, you’re risking 100% loss and, moreover, you will be obliged to justify why you would invest all your super into only one financial asset type.
However, if you’re a real crypto enthusiast and can afford the risk, you can still diversify, in this case, your crypto holdings.
Below are five ways you can go all crypto without throwing all eggs into only one basket:
1. Invest in cryptos with different use cases
Like all other assets, crypto is not only used for transactions in exchange for goods and services. Some cryptocurrencies, such as Bitcoin, can be used as a store of value. Many investors who decided to stake Bitcoin – had outsize returns.
You can also put part of your money into stablecoins, usually pegged to an underlying asset, such as the US dollar. Their name says it all – they are steady, reliable and can act as a haven from the usual volatility of the crypto market.
2. Invest in various blockchains
Blockchain is a base needed for cryptocurrencies to work properly. However, blockchain is not just that. For example, an Ethereum blockchain facilitates the execution of contracts without a third party and allows dApps to be built on its platform. Another famous blockchain is Cardano (ADA), renowned for its efficiency and scalability.
3. Invest in crypto with a different market cap
Even though Bitcoin may seem like the most obvious choice since its market cap currently stands at over $445 billion, there are numerous other altcoins to consider.
Yes, the larger the market cap, the more stable the coin is. However, some coins with smaller market caps could have humongous growth potential.
4. Invest in crypto projects from different parts of the world
Investing in crypto projects from different places around the globe can give you more significant exposure to different types of businesses. However, be aware of the crypto laws in the countries where the projects are coming from. Some countries have banned cryptocurrencies while others are eager to become a crypto hub and have all of the benefits such as lower taxes or no taxes at all.
5. Invest in different sectors
One can find opportunities for blockchain and crypto in many different sectors. There is the finance industry, but also health, gaming, luxury, environmental or even sport and leisure sector. Decentralized finance, or DeFi, enables users to efficiently conduct digital transactions by sending, lending and investing in crypto.
Blockchain technology is efficiently solving some of the key issues for the finance industry through providing transparency, tracking and other applications of the technology, and in so doing, custody of NFTs, tokens and coins is vital. At Unido, we support dApps by providing a secure self-custody solution for various businesses. Unido, therefore, provides you with a personal DeFi dashboard for your business with real-time data, on-point analytics, and in-depth insights on your crypto portfolio. That’s how you’ll be secure it’s well diversified and carefully looked at.
About Unido EP
Unido EP takes the complexity and expense out of digital asset management for organizations with sophisticated corporate governance needs. Our patented, end-to-end platform seamlessly automates corporate governance and self-custody of crypto assets so you can securely store, manage and invest in crypto without massive overheads.
Unido EP comes with a web-based dashboard and a decentralized application (dApp) featuring a robust set of DeFi tools, easy-to-set-up authority regimes and iron-clad security. All of this is inside a complete digital asset management platform, built with financial institutions in mind but tailor-made for any organization or individual’s needs.
Financial Information Disclaimer
The information presented in this content is general in nature and has been prepared without taking into account your individual objectives, needs or financial situation. You should consider whether the information is appropriate for you before making an investment decision.