Long-term investors often follow three key principles: staying invested through economic cycles, contributing systematically to their portfolio, and maintaining a diversified portfolio across various asset classes. While the first two principles focus on commitment and consistency, diversification reflects an investor’s outlook on asset class performance.
Many investors overlook diversification, limiting their exposure to just U.S. stocks and bonds. This neglects the potential benefits of other asset classes, including cryptocurrencies. Diversification offers a broad approach, embracing the possibility of various asset classes performing well.
Multi-asset investing is gaining popularity as a way to navigate the complex and dynamic market landscape. Instead of focusing on a single asset type like stocks or bonds, multi-asset portfolios spread risk and potentially enhance returns by incorporating diverse assets, such as equities, fixed-income securities, real estate, cryptocurrencies, and more.
The Case for Cryptocurrency Allocation
While U.S. equities saw a strong 23% performance last year, cryptocurrencies, particularly Bitcoin, outperformed the S&P 500 Index with a remarkable 156% return. Although Bitcoin’s exceptional performance might seem enticing, it’s important to recognize its high-risk/high-return nature. However, given the current market conditions, incorporating a reasonable cryptocurrency allocation within your portfolio presents several advantages.
The robust performance of U.S. equities in 2023 was largely driven by the “Magnificent Seven” – a group of mega-cap companies like Apple, Microsoft, Amazon, Nvidia, Alphabet, Meta, and Tesla. These companies now exert significant influence on the U.S. equity market, making investors vulnerable to their fluctuations.
Conversely, Bitcoin and other crypto assets have shown returns with low correlation to public equities. This combination of high returns and low correlation makes Bitcoin a valuable addition to a portfolio, potentially boosting overall returns and enhancing diversification.
Furthermore, the decentralized nature of Bitcoin and other cryptocurrencies has become increasingly appealing in the face of uncertain macroeconomic and geopolitical landscapes. These crypto assets offer potential “safe-haven” qualities, drawing investors seeking stability during periods of elevated market risk.
In essence, crypto assets expand the range of risk and return options available to investors within public markets. For investors seeking higher returns with greater risk tolerance, the crypto asset class offers potentially higher total returns through readily available liquid instruments on exchanges.
Determining the Appropriate Allocation
Every individual’s investment situation is unique, and their allocation to specific asset classes will vary based on factors like age, experience, income level, and risk tolerance. Since crypto is a high-risk/high-return asset class with low correlation to stocks, it can potentially help investors overcome common portfolio construction challenges. Even a moderate allocation can significantly impact portfolio performance.
Specialized platforms like Caleb & Brown provide premium and personalized services for both beginner and advanced crypto investors. They offer access to Bitcoin and hundreds of other crypto assets for your portfolio, with dedicated relationship managers available to guide you through the process.
