In December 2016, I wrote a short blog about incorporating our Forex fund into a diversified portfolio, noting how using active investment tools like Countinghouse Fund can bolster an investors returns while still yielding a stable and consistent overall Return on Investment (ROI).
I thought it would be good to address portfolios again, referencing our crypto-exchange fund and investing in the blockchain as a ‘set-and-forget’ type investor. As with our Forex fund, active investments like our fund works on capturing volatility rather than relying on swing trading methodology (where one relies on predicting the future price of an investment). A properly diversified portfolio is still one of the best ways to incorporate funds like ours into an investor’s overall line up of investment instruments, be it traditional instruments like shares or cash-products, or blockchain investments like ICOs and direct investment in crypto-currencies. The fact remains that diversification is key.
To illustrate this, we have provided a simplified example of a diversified portfolio. This example investor portfolio compares an investor investing $6,000 in Bitcoin (BTC) only, $6,000 in Countinghouse only and a 50–50 split in BTC and Countinghouse. See Table 1 below. This example takes place in quarter one of this year, where the price of BTC dropped, and perfectly illustrates why simply having a portfolio based solely on asset-growth based investment instruments can be problematic.
Table 1: Showing three example portfolios.
As seen above, solely relying on BTC this quarter results in a -50% loss. Countinghouse did well comparatively, because we trade movement, even if it’s down. More importantly in my mind however is the balanced portfolio on the right of the table above. Investing solely on active investments is not a prospect many investors are comfortable with. Our instrument is high-risk, high-return, as we are interested in delivering profits through compounding returns. We automatically factor profits into the next trade so, meaning trades are consistently being entered with higher amounts than before to make profit work for investors as much as possible. We trade margins with respect, and employ mathematical-risk reduction strategies, but the fact remains that we are an active investment instrument. Most investors would choose to incorporate us into a diversified portfolio over using us as their sole investment product.
Below, we have two graphs. Figure 1 shows Q1 2018 with BTC only, Countinghouse only, and a balanced portfolio as described above, showing the equity lines of the three portfolio examples (though I suppose a portfolio of one instrument isn’t really an excellent example of the term). Figure 2 shows a Logaritmic Scale of the same three portfolio trades spanning 2017 and Q1 2018. Figure 2 is interesting because it shows that even when the market drops after BTC’s high point, having an active investment in this simplified portfolio example offsets these losses.
Figure 1: 2018 Q1 equity lines using example portfolios.
Figure 2: Logarithmic Scale showing 2017 and Q1 2018 using example portfolios.
Crypto-currency and investments using the blockchain enable investors of all types and capital to participate in a field that was often reserved for those that are well-off. While this democratisation of wealth is exceptionally exciting to us at Countinghouse, let’s not forget some of the fundamentals of wealth-creation.
Diversification of a portfolio is still vital.