How Much Crypto Is Too Much in Your Portfolio?

İstanbul, Turkey - January 14, 2018: Close up shot of crypto currency memorial coins on a financial chart.
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The success of cryptocurrency in terms of investor adoption is nothing short of amazing. According to an April survey of 1,037 investors by GOBankingRates, over 40% of respondents who buy crypto indicated that they have 11% or more of their investments in crypto.

About 12% indicated they wanted to own crypto for retirement, while 22% wanted to use crypto to diversify their investment portfolio.

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If you already own crypto or are thinking of investing yourself, it’s prudent to ask just how much crypto might be too much in your portfolio. Here’s a look at what some experts in the field say about how to properly balance your investments with crypto’s volatility.

Some Say Cap It at 1%

Dan Herron, a CPA at Elemental Wealth Advisors, recommends that his clients start slow when it comes to crypto.

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As Herron told NextAdvisor, “With my clients that are interested in learning more about crypto, I tell them that they can have up to 1% of their assets in cryptocurrencies and the remaining 99% in more traditional assets. However, as they become more familiar with the crypto space, we can gradually allocate more to that allocation.”  

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Ric Edelman, the founder of the Digital Assets Council of Financial Professionals (DACFP), agrees, telling Coindesk that a 1% allocation is something of a sweet spot, small enough to avoid major damage but still providing potentially significant upside.

Others Are Comfortable at 2-5%

An increasing number of financial advisors and industry experts seems comfortable recommending a crypto allocation of somewhere between 2% and 5% of assets. Vrishin Subramaniam, founder and financial planner at CapitalWe, said, “Two to 3% is usually what we see for most clients who are not tracking crypto markets more than once a week.”  

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Theresa Morrison, CFP at Beckett Collective, agrees: “Crypto-aware clients sit in two camps: crypto-savvy or crypto-curious. For the crypto-curious, a 1% diversification can be a way to explore.”

From there, both Subramaniam and Morrison agree that investors can bump up their allocations to 5%, but no more.

“Once it’s over 5%,” Morrison said, “you start to see the volatility swings affect the rest of the traditional portfolio, and most people don’t want that.”

Skeptics Tell You To Avoid It Entirely

Although more and more advisors are growing comfortable with recommending investors own some cryptocurrency, other prominent investors say to avoid it at all costs. For example, Warren Buffett and Charlie Munger, co-chairs of Berkshire Hathaway and some of the most famous billionaire investors in the world, have repeatedly railed against Bitcoin and crypto in general. Munger has called Bitcoin “evil” and said “it’s stupid because it’s still likely to go to zero.”

They are not alone. John Paulson, president and portfolio manager of U.S. investment firm Paulson & Co., told Bloomberg Wealth that “cryptocurrencies … will eventually prove to be worthless.”

When prominent, wealthy investors say an asset may become valueless, it’s something to consider when you’re evaluating its position in your portfolio.

The Bottom Line

Cryptocurrency may offer the potential for explosive upside, but it remains highly speculative. Whereas the stock market may occasionally suffer a 20% to 30% bear market, it has always come back to set new highs. This just may not be true in the case of cryptocurrency, which has no real-world earnings or products or sales behind its valuation.

At the current time, the crypto market is supported only by how much investors and speculators are willing to pay for it, which means there may come a day when crypto is worth zero. This may or may not happen, but the risk is there, and it should be adequately reflected in your portfolio allocation. 

The experts quoted above are generally bullish on crypto, but even they recommend keeping no more than 5% of your portfolio in crypto, which is telling. However, some say to avoid crypto at all costs, considering it a foolish investment that will eventually lose all of its value. When making the decision for yourself, carefully evaluate your investment objectives and risk tolerance and talk them over with a financial advisor before you put too much of your savings at risk.

Methodology: GOBankingRates surveyed 1,037 Americans aged 18 and older from across the country between April 8 and April 9, 2022, asking eight questions: (1) Do you invest in cryptocurrency?; (2) If you do not invest in crypto, why not? (Select all that apply); (3) How long have you invested in crypto?; (4) What is your main goal for your crypto investments?; (5) What percentage of your investments are in crypto?; (6) Which crypto(s) are you invested in? (Select all that apply); (7) How much have you profited from crypto (all-time)?; and (8) Which crypto exchange(s) do you use? (Select all that apply). GOBankingRates used PureSpectrum’s survey platform to conduct the poll.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.

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