Deciding How Much of Your Portfolio Should Go Into Cryptocurrency?

A diversified portfolio remains the benchmark for maximizing potential returns. In today's digital marketplace, a mixed bag of investments has to include digital currency. But like any investment, you need to make smart choices. Read on and learn more about deciding how much of your portfolio should be invested in crypto.

Why You Want to Get in on Cryptocurrency

According to Edelman Financial Engines founder, Ric Edelman, despite its price volatility, virtual currency ain't going nowhere. Edelman says, “Because there’s a fixed number of bitcoin, it’s inflation-proof and it’s virtually instantaneous.”

At the end of 2019, Grayscale Bitcoin Trust showed, through price tracking, that cryptocurrency was Charles Schwab's fifth-largest holding among millennials in self-directed brokerage accounts.

This demonstrates how appealing the option is. The smart investor wants to put at least a small portion of their portfolio into digital assets.

How Much is Enough?

Like any investment, it's about the variables, as well as the investor's willingness to risk. And, most importantly, the investment is about familiarity with cryptocurrency and its market.

As stated before, this is a volatile market. On December 15, 2017, a single virtual unit was valued at a whopping $19,650. On December 14, 2018, that figure had dropped to $3,183. A little over a month later, one bitcoin was worth $9,300. Eleven months later, on December 4, 2020, Bitcoin was trading at 19,395.60 across cryptocurrency exchanges like OKX. As you can see, this market carries little correlation to other asset classes we're holding. They are well primed to boost diversification in the constantly increasing and highly correlated global markets.

So, ultimately, this is about the risk you're willing to take. Allocating just one percent of your portfolio will provide diversification with little risk. It won't prevent goals. But is such a small amount worth your time? 

How much you want to invest should be based on your research, your adventurousness and your finances. The experts are going to have their opinion. You can certainly follow the lead of the ones you respect, but that doesn't absolve you of researching.

Ideally, crypto allocation can safely land in the 3% to 6% range or putting no more than 10% of your portfolio into these assets. The younger you are the more you can afford to risk.

According to Joe DiPasquale, cryptocurrency CEO at BitBull Capital, “if possible” [the portfolio] “should be balanced every year, depending on how the market matures.”

Some financial advisors dare suggest investors look at investments in the 6% to 18% range. For this steep a risk, consider the makeup and size of your portfolio, as well as your tolerance for risk. This is an aggressive role to take. And it's a tact best suited for investors with maximized exposure to cryptocurrency.

Regardless of the allocation, investors cannot shirk their responsibility. You need to do your homework. Dig deep into the school of digital assets. Edelman says, if you don't, “you’re not investing; you’re spending.”

Conclusion

Whether you're jumping in for the long haul or for a quick cash burst, approach it with a long-term mentality. You want to make an investment that impacts your portfolio in the positive and helps you through volatile times. And, as always, never invest more than you're willing to lose.

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