How Much You neet to Invest in Cryptocurrency

How Much to Invest in Cryptocurrency

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The steep drop in Bitcoin's value in May is an excellent example of the dangers of crypto investing. Cryptocurrency remains a very volatile investment, prone to large fluctuations in short periods of time.

Even so, regular investors are interested in learning more about cryptocurrency. Some of the most well-known financial gurus are beginning to talk and think about cryptocurrency more. Tori Dunlap of Her First $100K recently told us that she still advises individuals to err on the side of caution and stick to the 5 percent rule, which means they shouldn't put more than 5% of their portfolio into riskier assets like crypto.

"I think it's extremely important to keep in mind that these things are still speculative," says Dunlap, who saved her first $100,000 at the age of 25 and plans to retire with $6 million in savings. "You should probably be OK losing a given amount of money if you're investing a certain amount of money."

It's critical to do your homework and understand all of the hazards before making any new investment. Experts advise against investing in cryptocurrency if it means you won't be able to meet other financial obligations, such as paying off debt, saving for a rainy day, or maxing out other retirement accounts. And just because crypto is new and exciting doesn't mean you should invest in it; individuals have been saving and investing for retirement for decades before crypto existed.

So, if you're going to invest, how much is too much? Five financial advisors were asked to comment on what they tell their clients:

1. Vrishin Subramaniam: 2–5% of your total net worth

Crypto investors should put between 2 and 5% of their net worth into it, according to Vrishin Subramaniam, founder and financial planner at CapitalWe. "We normally see two to three percent for most people who don't watch crypto markets more than once a week."

The risks and volatility associated with Bitcoin are mostly due to its recent history, especially when contrasted to the stock market. Subramaniam tells clients that as additional information regarding the cryptocurrency's performance becomes available, they can change their crypto strategy accordingly. However, until then, Subramaniam advises limiting your crypto assets to a smaller percentage of your overall portfolio.

1. Theresa Morrison: 1–4% of your total portfolio

According to Morrison, CFP at the Beckett Collective, how much you should invest in crypto is determined by your level of interest and understanding of the industry.

"There are two types of crypto-aware clients: crypto-savvy and crypto-curious," adds Morrison. "A 1% diversification can be a means to study [crypto] for the crypto-curious."

Consider your asset allocation and diversification techniques in the same manner you would with a traditional portfolio, according to Morrison. Cryptocurrency should be viewed as a risky investment. "The key thing is to take a holistic view of both. What effect will it have on your net worth?"

Morrison, on the other hand, advises keeping crypto investments to less than 5% of your whole portfolio. "Once it gets above 5%, the volatility swings start to effect the rest of the typical portfolio, which most people don't want," Morrison adds.

1. Dan Herron: Up to 1% of your net worth

Start small, advises Herron, a CPA with Elemental Wealth Advisors, and gradually increase as you gain experience.

"I tell my clients who are interested in learning more about cryptocurrency that they can have up to 1% of their assets in cryptocurrencies and the balance in more traditional assets." We may gradually allocate more to that allocation as they grow more familiar with the crypto space," Herron says.

But, as Herron points out, don't go above 5% right now. The cryptocurrency market is still too new to deserve a larger share of an investor's portfolio.

1. Ryan Sterling: A maximum of 3% of total liquid assets

According to Sterling, creator of Future You Wealth, crypto can be a smart way to diversify your portfolio. Nonetheless, keep your allocation below 3%.

"I'm incorporating cryptocurrency into client portfolios, but I'm keeping exposures at no more than 3% of total liquid assets," Sterling adds.

1. Michael Kelly: 1% to 2%

According to Kelly, CFA at Switchback Financial, a modest allocation can give fresh chances for a healthy investing portfolio, depending on your position. But keep in mind that cryptocurrency is quite volatile.

"I see a very small allocation, 1 to 2 percent, as a potential prospect depending on the client's specific risk return profile," Kelly says. "Because of its lack of correlation with traditional assets like equities and bonds, I see it as a viable asset class in a portfolio."

Kelly sees cryptocurrency's volatility and unique traits as an opportunity. "Despite the high volatility, the lack of correlation minimizes overall portfolio volatility, allowing for tremendous upside potential in returns." A tiny allocation in a portfolio might have a huge return potential while posing little risk."

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