Key Points
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Cryptocurrency can grant portfolios more exposure to upside, but at the cost of a lot more risk.
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That argues in favor of keeping your crypto allocation relatively small.
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Major asset managers have a few good ideas about the details here.
If you’re not sure how much of an allocation cryptocurrency deserves in your portfolio, you’re in the right place. The world’s biggest asset managers have published a few frameworks addressing exactly that issue over the past year, and their proposals converge pretty tightly.
Here’s what they suggest.
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What the heavyweights recommend
BlackRock, an asset manager that manages over $12.5 trillion in funds, advises a 1% to 2% Bitcoin (CRYPTO: BTC) allocation within a standard 60/40 stock-and-bond portfolio. Its logic is that a 2% position contributes roughly the same portfolio risk as any single Magnificent Seven stock, but going beyond that causes crypto’s risk contribution to balloon disproportionately.
The bank Morgan Stanley suggests an allocation of up to 3% to crypto for moderate-growth investors and 4% in aggressive portfolios. That overlaps neatly with Fidelity’s research, which suggests a 2% to 5% range, noting that even a modest allocation can enhance retirement spending potential.
Therefore, for most people, a 1% to 5% allocation to Bitcoin is a wise addition to a diversified portfolio. If your risk tolerance is on the lower end, 1% can still give you meaningful exposure without causing you to lose sleep.
Altcoins deserve extra caution
Bitcoin earns those allocations because of its decent track record. Other crypto majors like Ethereum and Solana are good investments too, but they carry volatility that dwarfs even Bitcoin’s.
So unless you’re deliberately constructing a dedicated crypto portfolio and comfortable with riding out 50% or greater drawdowns, keeping exposure to the non-Bitcoin crypto majors to below 1% to 2% of your total portfolio value is a sensible approach. Smaller altcoins, if you dabble in them at all, should probably not exceed a 1% allocation at most, even as a group.
Remember that crypto’s volatility will drift your allocation higher in bull markets and shrink it during downturns. Be sure to rebalance regularly.
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Alex Carchidi has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool recommends BlackRock. The Motley Fool has a disclosure policy.
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