WARNING: Are you investing too much money in crypto?
Are you investing too much money in crypto?
Let's tall about asset allocation! Generally, financial advisers will tell you to allocate your money to:
- Cash & cash equivalents (highly liquid, low risk/low return assets)
- Fixed income securities (corporate & government bonds)
- Equities (stocks)
The proportions depend on your risk preference. Younger people will generally have higher risk preference than older people so they'll generally invest nearly 100% in stocks and 0% in bonds. Older people who are nearing retirement or already retired desire steady returns so they will have a majority in their portfolio in bonds.
Now we have an entirely new asset class: cryptoassets. How much should you invest in crypto? Personally, I would recommend an average person to invest 0-10% in crypto. Yes, that means even mom and dad. Read my post on Bitcoin as a store of value to find out why. Now, if you are particularly enthusiastic about crypto, you could consider allocating 10-20% of your portfolio to crypto.
I strongly advice against keeping more than 20% of your total assets in crypto! Remember, crypto is just one technology. It's one thing to diversify your cryptocurrency holdings but you really should diversify over multiple asset classes. If stock don't do well, bonds might do better. If crypto experiences a huge crash, stocks might be stable. If you are invested in multiple asset classes and diversify within each asset class, you'll have the highest rate of return adjusted for risk!
Don't go all in! Keep some cash on hand!
The second thing I want to talk about is that, regardless of how much you allocate to stocks, bonds and crypto, you should always keep some cash on hand (10-20%). Never go 'all in' and invest 100% of your money. You should always have some money reserved just in case. Let's say the stock market goes down by 20% or the cryptocurrency bubble pops. That's when you want to use that cash and buy assets with huge discounts.
How are your assets allocated?
Leave a comment and let me know!
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I think a lot of people will be investing too much in crypto and I believe your % amounts of your wealth to put in crypto are reasonable. I fear for people who are "betting the farm", because as much as the blockchain technology and even a dozen or two cryptocurrencies have massive benefits to them, I believe as much as 90% of all the cryptocurrencies will end up failing (in terms of people's expectations of the price going through the roof at least).
Your final point about keeping extra cash for discount assets is something I have personally fell victim to not obeying in the past and missed out on some really good opportunities because of it!
Anyways, I followed you to learn more from your posts in the future.
Completely agree with you. Coinmarketcap lists 1419 cryptocurrencies and there are probably many more small ones out there not listed on CMC. I strongly believe in a few years time, there will only be a few dozen left. To kill off the weak crypto currencies we're going to need a huge crash. After that, money will flow back into the winning crypto's.
Thanks for the follow! Check out my other content if you want. You can vote for which crypto I should cover in-depth in this post. There's only a few hours left to vote!
Let me know what you write about and maybe I'll follow you as well!