How much of your money should be in bitcoin, experts say

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When it comes to investing in the highly volatile new asset class of cryptocurrencies, most financial advisers have at least one wisdom: don’t invest more than you can afford to lose.

But while this rule of thumb is useful, it’s pretty general. And so, advisers are increasingly trying to find a more nuanced way to establish how much, if anything, their clients’ money should be in bitcoin and other digital tokens making headlines and massive wealth for them. some.

Anjali Jariwala, Certified Financial Planner, CPA and Founder of FIT Advisors in Torrance, Calif., Said she does not recommend any clients to invest in cryptocurrencies until “they have their house in order. “.

For her, that means that they have a strong emergency savings account to turn to, that they are setting aside a good sum for their retirement, and that they are on track for anything else, like sending a child in college or buy a house.

If a client has ticked all of these boxes, Jariwala said, investing in cryptocurrencies may be an option for them.

But how much of their money should go their way?

To find a number, she said she borrowed from the standard rule of how much money to invest in a particular stock: no more than 3% of their portfolio. Other advisers have set their percentage at 2%, she said, and “5% is the highest I’ve heard from an advisor’s perspective.”

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Another unusual aspect of investing in cryptocurrencies is how rebalancing works, Jariwala said.

For example, if an advisor decides that a client’s portfolio should not contain more than 30% stocks, they will have to sell stocks if there is a sharp rise in the market to maintain their percentage of stocks in the market. below this threshold.

Yet recently Jariwala had a client whose cryptocurrency exposure increased from 3% to 6%. She did not recommend selling.

“I’m okay with them keeping this investment because I don’t like it when people come in and out of an investment too quickly,” she said. “It’s hard to apply my usual ground rules for rebalancing.”

Alex Doll, CFP and president of Anfield Wealth Management in Cleveland, Ohio, has his own formula. He recommends that clients invest no more than 10% of their “risky” assets in cryptocurrencies.

So suppose someone has 70% of their money in stocks and other more volatile investments, and 30% in bonds and other forms of fixed income. They could put up to 7% of their money in cryptocurrencies. (He found that clients often like to spread their allocation across different digital tokens, he said, most commonly Ethereum and Bitcoin.)

Some people should probably stay away from cryptocurrencies, Doll said. This includes people who don’t have money they can afford to lose and retirees who live off their wallets.

At the same time, some people may invest more heavily in tokens, he said. Although these situations are limited.

“The only time I think it’s okay for someone to invest a larger amount than I would recommend would be if they are young and have many years of good income from a stable job and really understands the crypto world, ”Doll said. . “In this situation, if they were to lose more than expected, they will at least have the time and a continuous stream of income to make up for the lost savings.”

It’s not just about numbers, he said. Doll also tries to gauge how her clients will react emotionally to such a volatile investment.

“I start by looking at the maximum amount I would recommend them to invest given their overall portfolio, and ask them if they are comfortable losing, say, 50% of that amount in exchange for potentially doubling or triple that amount, ”Doll said.

“You don’t want to be in a situation where you are losing sleep.”

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