Rebalancing Your Portfolio

One of the perks of being a New Wave client is that at the end of every quarter, you can choose to rebalance your portfolio. This is a popular feature of traditional robo-advisors such as Wealthfront and Betterment, but the benefits are arguably even more pronounced in the crypto world. Here’s why:

Access to newly recommended coins
The crypto ecosystem evolves very quickly, and we constantly research hundreds of coins to find the ones that are most promising to add to our portfolio. In September, we added 0x, Basic Attention Token, and Civic. Clients that signed up prior to September do not have those coins in their holdings, and rebalancing allows them to be added in.

Removal of certain coins
On the flip side, we may no longer have a favorable investment thesis on certain coins. For instance, in September we removed Bitcoin Cash from our recommendations. While Bitcoin Cash has a lot of liquidity on popular exchanges, we believe that its relatively low transaction usage makes the asset significantly overvalued at its $8B market cap. Bitcoin is solving scaling issues thoughtfully with the Lightning Network, so the benefit of Bitcoin Cash’s larger block size is diminished. Once again, rebalancing allows for these coins to be removed from client portfolios.

Balancing risk and reward
While cryptocurrencies are a risky asset class as a whole, there’s quite a difference between Bitcoin (>$100 billion market cap and 10 year history) and Numeraire ($6 million market cap and 1 year history). When smaller coins happen to skyrocket in a quarter, your portfolio can get skewed, and suddenly you are taking on more risk than is recommended. Rebalancing in this case would sell the higher returns for the lower returns, which is counterintuitive, but better matches your risk tolerance over the long run.

Provides a good reason to review
Quarterly rebalancing is a great time for you to take a look at your portfolio allocation and performance. It gives an opportunity to calibrate with your personal financial goals and adjust your risk tolerance or investment amount if appropriate. And if you’re happy with New Wave, we’d love for you to share the word with your friends through your referral link in our dashboard settings.

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