Building a portfolio: tiers, allocations and rebalancing
The allocation decisions that matter are made in a spreadsheet on a quiet afternoon, not on a screen during a move.
Decide the total first, and separately
The most consequential number is not which tokens. It is what percentage of your total net worth sits in crypto at all. Everything inside that allocation is a smaller decision than the size of the allocation itself.
- Start from what you can lose entirely without changing how you live. That is a hard constraint, not a conservative suggestion.
- Subtract your emergency reserve, three to six months of expenses, held in cash outside crypto. This is not part of the calculation, it is prior to it.
- Subtract money with a job in the next five years. A deposit, school fees, a known expense. Crypto drawdowns last years and do not consult your calendar.
- What remains is the pool. Your crypto allocation comes out of that, not out of everything.
- Write the percentage down and treat any number above it as a signal to trim rather than a reason to celebrate.
A tiered structure
The percentages are a starting shape, not a prescription. What matters is that each tier has a defined job, a defined maximum, and a rule for what happens when it exceeds it.
Rebalancing: the mechanism that enforces discipline
Rebalancing means periodically returning to your target weights. Its real function is not optimisation. It is that it forces you to sell what has run and buy what has not, mechanically, at the exact moments your instincts argue hardest against it.
The rules that prevent the common failures
- A maximum for any single position, including one that grew there. Something that becomes forty percent of the portfolio through appreciation is a concentration risk regardless of how it arrived.
- A rule for profits. Decide in advance what happens when a position doubles. Taking the original stake off the table is a simple and effective default.
- A rule for the speculative tier. Never top up a losing speculative position. It was sized for total loss; adding to it breaks the sizing that made it acceptable.
- A minimum for dry powder. If stablecoins fall below the floor, the next action is to rebuild them rather than to buy something else.
- A rule about new positions. A new holding is funded by trimming an existing one, not by reducing dry powder. This caps the number of things you must track.
Write it down before you need it
Every rule above is easy to hold in a calm market and nearly impossible to invent in a violent one. The portfolio document is short, takes an hour, and its value appears entirely on the days when following it feels wrong.
BEFORE YOU MOVE ON
Common questions
How much of my portfolio should be in crypto?
Only what you could lose entirely without changing how you live, after setting aside an emergency fund and any money needed within five years. One to ten percent of net worth is a common range for an ordinary financial position.
How should a crypto portfolio be structured?
In tiers with defined jobs: a core of Bitcoin and Ethereum, an established tier with written theses, a small speculative tier sized for total loss, and dry powder in stablecoins so you can act in a crash.
How often should I rebalance crypto?
Quarterly with drift bands works well for most people. It catches large moves without generating constant transactions, though it does create taxable events in most jurisdictions.
Risk warning: crypto is highly volatile and largely unregulated. You can lose everything you put in. Nothing here is financial, investment or tax advice.