What is Luno’s new multi-buy option and how do you use it?
‘Don’t put all your eggs in one basket’. It’s a phrase you have probably heard often enough, but how can it help you with your money?
When it comes to investing, spreading your eggs across different baskets is known as diversifying your investments. The thinking is that this spreads the impact of any price drops in one of your investments across your portfolio, as they are balanced out by those that are either stable or seeing rising prices.
With Luno you can now easily diversify your investments by buying multiple cryptocurrencies in one simple purchase. You’ve got a range of options, whether it’s buying all our most popular cryptocurrencies or even all our cryptocurrencies. Or you can decide which cryptocurrencies to buy and the amount will be evenly distributed across your selection.
There’s also a reduced fee of 1.75% whenever you buy multiple coins in one purchase.
How does diversifying across cryptocurrencies work?
If you put all your eggs into one cryptocurrency, the value of your investment will rely exclusively on the performance of the one. If Bitcoin’s having a bad day, for example, the value of your investment’s going down with it. Spreading your investment between three or four or five coins breaks up this risk as it’s likely that they will either not fall by as much or potentially go up.
Bob invests $100 into a cryptocurrency – let’s call it Crypto A. Its value halves overnight, leaving Bob with an investment portfolio worth $50. Alice also invests $100, but she spreads her investment evenly across three cryptocurrencies – A, B and C. While the price of Crypto A has halved from $33.33 to $16.66, Crypto B has stayed the same and Crypto C has doubled. This means Alice’s investment portfolio is still worth $100 as any Crypto A losses have been offset by her investment into the other cryptocurrencies.
How do you spread risk?
Diversification applies to investments across all asset classes, whether it’s cryptocurrencies, equities or property, and throughout the entire investment journey.
There is diversification at the top level, between the different asset classes: currency, commodities such as gold, property, equity, cryptocurrencies, and so on.
Then there is diversification at the lower level, within each asset class. In your equity investments, for example, it’s common to put your money into a number of different companies operating in different sectors rather than just pouring all your savings into one company stock. The same goes for cryptocurrencies.
Preserving wealth may be less exciting than generating it, but a balance between the two approaches is widely-considered to be one of the most important aspects of long-term investment.