Explainer: How IX15 re-balances the top 15 digital currencies
In the End, it’s all a Question of Balance
Digital currencies are just over 10 years old and are on the verge of global adoption as an independent asset class. But blockchain and digital currencies are far more than the latest buzzwords, as some would have you believe. They are transforming the way in which we interact and conduct business. If properly understood and responsibly implemented and regulated, these two technologies have the potential to change the world. The market is in its very early stages, and for those looking at its investment potential, digital assets could prove to be the best thing you ever put your money into. When we evaluate risk versus reward potential alongside the performance of digital currencies in so short a timeframe, it is highly advisable to make digital assets an addition to your investment portfolio. For anyone considering allocating a percentage of digital assets to their portfolio, incorporating digital assets through an index and rebalancing strategy can considerably offset the potential risks arising from the current volatility of this emerging market, whilst still maintaining exposure to the huge potential that many leading analysts see in digital assets
So what is a rebalancing strategy ? Rebalancing simply means the act of buying or selling assets within the portfolio to maintain the set asset allocation. Over time, an investment portfolio will change due to price fluctuations of each asset within the portfolio. This fluctuation puts the asset allocation out of balance, so by selling over-performers and buying under-performers, we are rebalancing the portfolio to its equilibrium. This is the act of rebalancing and it is a proven effective low-cost asset management strategy. Rebalancing maintains a portfolios original risk profile regardless of market movement. It also adheres to the first rule of successful long-term investing, buying low and selling high, known as contrarian trading and has proved to significantly beat market cap indices.
Smart beta strategies that employ systematic rebalancing can help the investor by taking emotions out of the equation. Some investors become emotionally involved, chasing returns at any cost, throwing more money at over-performers while selling off under-performers; this is where a smart beta strategy can pay off, as it is a hands-off approach known as passive investing. This means that neither the investor or a fund manager is constantly buying and selling stocks on preference, an action that not only incurs considerable fees but is also susceptible to human error. It may not blow your socks off, but it will consistently provide above average returns and not too many stock pickers can make such claims.
Setting the right rebalancing strategy is about controlling the risk versus reward potential of each asset within the portfolio. The primary goal of rebalancing is not so much about maximizing returns, it’s also about minimizing the risk relative to a target asset allocation. Incorporating a rebalancing strategy into a digital currency index not only reduces the risk of volatility, but maintains potential growth exposure in this new asset class. This is what makes Isonex Capital’s IX15 fund token such a valuable addition to any investment portfolio. Take a look at our 1% article on medium.com
Digital currencies are what is known as alternative investments and are defined as non-correlated assets; this means that their performance does not follow traditional asset classes such as stocks or bonds. Digital currencies like all alternative investments tend to move in the opposite direction to the stock market. With mainstream adoption they could prove to be a smart strategy in reducing portfolio risk in the event of a stock or bond market meltdown.
The diagram above describes the steps involved in rebalancing IX15 equal weight digital currency index fund. Step 1 — the state in which each digital currency represents an equal dollar amount in the fund. Step 2 — the period between rebalancing, prices are fluctuating and the individual digital currencies are no longer equally represented in the index fund. Step 3 — describes the process of rebalancing the index fund on the 30th day by buying underperformers and selling overperformers. Step 4 — the rebalanced index fund equally weighted after the rebalancing procedures.
Isonex Capital’s IX15: Maximize your gains and minimize your losses with a smart beta investment strategy
**Isonex Capital is dedicated to the growth of digital currencies within the global marketplace and in facilitating investment into the blockchain ecosystem. We strongly believe in investor protection through security and transparency. We are committed to helping newcomers gain an understanding of the risks involved in this new asset class. If you would like to find out more about us, visit https://isonex.io
