How much do I Invest??? An old-school asset allocation strategy given new life with Crypto!
"How much do I put into crypto?" I hear you ask. A hundred dollars? A cool grand? Wouldn't it be nice if there was an exact way to figure it out?
Well wonder no more my friends!
We are about to walk down the lanes of history and find a rule-of-thumb almost as old as investing itself that we can apply to the hard and fast crypto markets of today. For anyone who has contemplated their retirement you may have come across the stock/bond allocation rule where you take 100 and subtract your age to get the hypothetical stock allocation that's appropriate for your age. This rule has been used for decades by all the biggest and brightest players in the wealth management industry and today it is your chance to use it!
'But Adam..." I hear you say, "Coins aren't Stocks!"
Indeed you'd be right my trust associate, as the volatility that makes cryptos such an amazing investment makes them so incredibly risky, they cant possibly be compared to stocks... not unless, we normalize the volatility, that is.
Now U.S. stocks have a historical volatility (over the last 1 year) of about 12.2%. Bitcoin, the SLOWEST MOVING out of all cryptos, has a historical volatility of about 103.3% (over the same 1 year). THATS 8.4 TIMES MORE VOLATILE and thus, 8.4 times more risky.
To apply the equivalent rule we simply divide your '100 - age' result by 8.4 to get the true risk adjusted allocation. Simple as that!
An example for my good fellows:
My age is 28
100-28 = 72
72 / 8.4 = 8.5%.
Therefore, 8.5% is the age AND volatility adjusted portfolio allocation of cryptos as a proportion to my net worth.
If I had $10,000 in my savings account, this would be $850. If I had $100,000 to my name, this would be $8,500 and so on.
I hope you all find this old school rule and my modern interpretation of it useful! If you have any questions or comments please let me know!!
p.s. Please check out my other blog posts, I do economic reports and will be sharing lots of trade ideas in the future!
