How Much Crypto Should Be in Your Investment Portfolio?

How Much Crypto Should Be in Your Investment Portfolio?

International and Arab News

Cryptocurrencies may be all the rage, but good luck figuring out how they fit in a portfolio.

Money managers generally try to maximize gains and limit losses by estimating the expected risk and return of various investments and then assembling a mix that offers the best trade-off between risk and return. The most widely used measure of risk is volatility, or standard deviation in finance speak. For traditional investments such as stocks and bonds, historical averages are a good gauge of future price swings because volatility tends to hug a tight range over multiyear periods.

Estimating future returns is trickier. Investors can rely on historical averages there, too, and many do. But while multiyear returns often approximate their historical average, they occasionally vary from it by wide margins, usually during market extremes.

One way to handle those extremes is to deconstruct the drivers of returns. For example, most of the payoff from bonds comes from their yield, and bond yields in the US are at historic lows. So while long-term government bonds have returned about 6% a year over the past 100 years, the current yield on 30-year Treasuries of just 2.4% signals that returns are likely to be a