Svmuu News Charles Schwab's latest research indicates that even allocating just 1%–3% of Bitcoin (BTC) or Ethereum (ETH) in a portfolio can significantly impact its overall risk characteristics. The study points out that both Bitcoin and Ethereum have historically experienced declines exceeding 70%, far surpassing the volatility levels of stocks or bonds. Therefore, even a small allocation can have a noticeable effect during periods of market volatility. Charles Schwab proposes two methods for allocating crypto assets:
1. Traditional Portfolio Theory Method: Allocates based on expected returns, volatility, and correlations. However, there are significant differences in return assumptions. If the expected return is below 10%, even aggressive investors would find it difficult to justify a large allocation.
2. Risk Budgeting Method: Determines the crypto asset allocation based on the level of risk an investor is willing to bear. This shifts the focus from returns to risk tolerance, but the volatility of crypto assets may still exceed expectations.
Charles Schwab emphasizes that crypto assets are highly volatile and are not suitable for all investors. Investors need to carefully allocate based on their risk tolerance, investment horizon, and familiarity with the assets, while also being mindful of risks such as liquidity, theft, and fraud. (CoinDesk)