You want your investment portfolio to withstand the ups and downs of the various markets. And yet with traditional investing, that’s hard to do. So… what now?
The answer is adopting an absolute return strategy.
Today we’re diving into the benefits of adopting an absolute return strategy, including in the burgeoning world of cryptocurrency investments!
Understanding Investment Strategies
When we talk about an investment strategy, we’re referring to a plan or a method that guides how a person chooses to put their money into various types of investments.
This plan is based on your goals, how long you want to invest, and how much risk you’re willing to take.
Some people might be aiming to save enough money to buy a house in a few years. Others could be looking at securing their financial future for retirement. Depending on these goals, an investor might choose different paths.
The importance of having an investment strategy cannot be overstated. Without a clear plan, investing can become a confusing and stressful process. It’s easy to get lost without a direction, especially when the market is full of options and opinions.
A well-thought-out strategy helps you stay focused on your long-term goals, even when the market is unpredictable. It acts as a buffer against making decisions based on emotions or hasty judgments, which can lead to losses.
Absolute Return Strategies
An absolute return strategy is a type of investment approach aimed at generating a positive return on your money no matter how the overall market is performing.
Unlike other strategies that try to do better than a specific market index or benchmark, an absolute return strategy seeks to make money for you in both up and down markets.
The main goal here is to work towards a steady and reliable growth of your investments over time, regardless of the ups and downs in the stock market or economy.
How They Differ From Traditional Investment Strategies
The biggest difference between absolute return strategies and traditional investment strategies lies in how success is measured and what they aim to achieve.
Most traditional strategies compare their performance to a benchmark, like the S&P 500 index. If a traditional fund’s performance is better than its benchmark, it’s considered a success. That’s true even if it actually lost money.
However, absolute return strategies don’t compare themselves to any benchmarks. Their only goal is to make a positive return, period.
This means if your investment grows by a certain percentage, that growth is seen as a win, no matter what the market itself has done.
This approach requires a different way of thinking about investments. It often involves a variety of methods and financial instruments to achieve these positive returns. And this includes strategies that can profit from markets when they are falling.
Investors who choose absolute return strategies are usually looking for a way to minimize risk. They’re also focused on the potential for steady gains over making the most money as fast as possible.
This can be especially appealing in times when the markets are very volatile or when traditional investments seem too risky.
Advantages of Absolute Return Strategies
One of the standout benefits of absolute return strategies is their flexibility. These strategies are not tied to investing in just one type of asset or market.
Instead, they can move across different assets like stocks, bonds, currencies, and even commodities to find the best opportunities for making money.
This flexibility means that if one market is doing poorly, the strategy can shift focus to another area that has better prospects. It’s this ability to adapt to changing market conditions that helps protect your investments and aims for positive returns over time.
Risk Management
Managing risk is a key part of absolute return strategies. This could mean using techniques that protect against big market swings. Or investing in assets that don’t follow the same patterns as the broader market.
By keeping a close eye on risk, absolute return strategies strive to provide a smoother investment experience. They help avoid the big ups and downs that can come with traditional investments.
Potential for Consistent Returns
The ultimate goal of an absolute return strategy is to achieve consistent, positive returns over time. This doesn’t mean making a huge amount of money quickly but rather aiming for steady growth.
By focusing on generating returns in both good and bad market conditions, these strategies can help investors build their wealth more reliably. This steady approach is particularly appealing to those who want to see their investments grow over the long term without the stress of dramatic market changes.
Incorporating Cryptocurrency into Absolute Return Strategies
Cryptocurrency has become a hot topic in the world of investing. It’s a digital or virtual form of currency that uses cryptography for security. Unlike traditional currencies, it operates on a decentralized network, using technology called blockchain.
With its rise in popularity, many investors are looking at cryptocurrencies not just as a new technology but as a potential investment opportunity. The value of cryptocurrencies can vary widely, offering high reward possibilities, but also high risks.
Types of Crypto Investments
Bitcoin is the most well-known and was the first cryptocurrency to be created. Besides Bitcoin, there are thousands of other cryptocurrencies, known as altcoins, like Ethereum, Ripple, and Litecoin.
Each of these offers different technologies and potential uses beyond just a digital form of money. Some investors might choose to invest in the blockchain technology behind these currencies or in various companies that are embracing cryptocurrency technologies for business applications.
The Role of Crypto in Diversifying Investment Portfolios
One key strategy in managing investment risk is diversification, which means spreading your investments across various types of assets. Cryptocurrency can play a role in this strategy. Because its market movements are often not in sync with traditional financial markets, including some cryptocurrency in a portfolio could potentially reduce risk through diversification.
However, because of its volatility, the amount of cryptocurrency included should be balanced with the investor’s risk tolerance and overall investment goals.
Investing in cryptocurrency within an absolute return strategy involves careful consideration of risks. The cryptocurrency market is known for its high volatility, with prices that can swing wildly in a short period.
Plus, the market is still relatively young, with less regulatory oversight than traditional financial markets. This can add to the uncertainty.
Despite these risks, the potential for high returns makes cryptocurrency an attractive option for some investors, especially those looking for innovative ways to diversify their investments and potentially enhance returns in an absolute return strategy framework.
Implementing an Absolute Return Strategy
The first step in implementing an absolute return strategy is to identify investment opportunities that have the potential to yield positive returns in various market conditions. This requires thorough research and analysis to understand the current market trends and economic indicators. You also need to consider the potential impact of geopolitical events on investments.
It’s also important to stay updated on technological advancements and regulatory changes. This is especially true in emerging sectors like cryptocurrency. By keeping an eye on these factors, investors can spot opportunities that others might overlook.
Building a Diverse Portfolio
Once potential investment opportunities are identified, the next step is to build a diversified portfolio.
Diversification is the practice of spreading your investments across different types of assets, sectors, or geographies to reduce risk.
For example, instead of putting all your money into stocks, you might mix in bonds, real estate, commodities, and a portion in cryptocurrencies.
This way, if one part of the market goes down, the other parts might still do well, balancing out the overall risk. The key is to select a mix of investments that align with your risk tolerance and investment goals. This helps to make sure that you’re comfortable with the balance between potential risks and rewards.
Monitoring and Adjusting the Portfolio
An important aspect of an absolute return strategy is the ongoing monitoring and adjusting of the portfolio. The investment landscape is constantly changing, so what worked yesterday may not work tomorrow.
Regularly reviewing your investments allows you to make informed decisions about rebalancing your portfolio.
This might mean selling off underperforming assets or taking profits from those that have done well. Or it might mean reallocating resources to new opportunities that have emerged.
The aim is to stay agile, adapting your strategy in response to market movements and shifts in the economic environment. That way, you can maintain a position that is most likely to achieve positive returns.
Maximize Your Portfolio With an Absolute Return Strategy
Adopting an absolute return strategy offers a promising path for investors seeking to navigate the complexities of the market with a focus on steady gains.
TrueCode Capital seeks to improve upon the results family wealth managers would achieve themselves algorithmically selecting a basket of cryptocurrencies to pace the growth of the overall crypto market.
We apply an algorithmic trading system to preserve capital during drawdowns, and allocate capital proportionally to assets that are the best in class, the Blue Chip cryptocurrencies. Get in touch today to find out how we can help your portfolio!
