What’s the right amount of crypto to have in my portfolio? That’s the question that bothers many, especially small investors, in the crypto market.
Despite the terrific return rate over the past few years, extreme volatility has dogged investors. And it restricts many from taking their first step into the world of crypto.
However, there are some ways to handle such extremely volatile assets in your investment portfolio, and to determine how much crypto to hold. And, as always, we are here to share what we know and help you on your investment journey.
- Following some rules of thumb can be a good way to start.
- They are often developed and refined over years and are handy for beginners.
- Never invest more than 5% of your investment capital in risky and volatile assets like cryptos.
- Diversify your portfolio; no coin should be more than 10% of the overall portfolio.
- Invest as per your risk appetite and in fundamentally strong crypto assets.
Follow the Rule of Thumb
Rules of thumb are methods and accurate guides developed on the basis of common sense and practical experience, rather than theory. They are often refined over the years and so are relatively time-tested.
In the investing world, too, we can find many such rules of thumb that simplify the investing process and boost the finances of individuals. For instance, the asset allocation thumb rule describes what the right portfolio composition looks like, to help investors drive better return growth while minimizing impact.
The same rule can be applied to figure out the right percentage of crypto to hold in our portfolio. Let’s understand how.
How Much Crypto to Hold
100 Minus Age
A popular and widely used rule of thumb for asset allocation is known as “100 Minus Age”. This rule says the percentage exposure to volatile equity assets should be 100 minus your age.
So, for example, if you are 30 years of age, then your percentage exposure to equity should be 100 minus 30—that is 70%. The balance amount can be invested in safer asset classes like debt. Individuals with a high-risk appetite can follow a “120 minus age” rule.
However, before following any such rule, you should do your own research and check its efficiency.
In the above example, we have seen how to calculate the ideal asset mix for your portfolio. Further, in the equity segment, which is majorly earmarked for the volatile asset class, you can have a mix of both cryptos and equities. That’s where the next rule comes into play.
The 5% Rule
According to this rule of thumb, you shouldn’t invest more than 5% of your portfolio in risky assets like cryptos.
Even a small exposure to cryptos can have a huge impact on your portfolio during a strong bull cycle while reducing the impact of deep drawdown during a bear market.
For instance, over the last five years, Bitcoin prices have grown by over 20 times—despite the market volatility and uncertainty. A small exposure would have translated into a huge gain, providing an overall boost to your portfolio returns.
How Many Cryptos To Hold?
In the investing world, the house is divided over this question. Some prefer to have 20–30 coins of well-diversified portfolios, while others consider investing in only a few fundamentally strong cryptos. Convert BTC to INR at the best rate here.
However, the basic rule is this: Do not invest more than 10% of your investment capital in cryptos in a single coin. It not only reduces the risk of asset concentration but also helps to manage risks and reduce the impact of any market volatility. Buy Bitcoin in India at the best rate.
You may find understanding cryptos complex and challenging, but investing in them is not. Applying the learnings of rules of thumb for investing is an easy way to start investing in the crypto market.
You should note, investing in cryptos should be done as per your risk appetite and not invest your entire savings at once. Once you have developed a fair understanding of the crypto market, you can pace your investment—but it should be done within limits to avoid financial misfortune.
Download the CoinSwitch Kuber App and explore the world of crypto assets starting at ₹100.
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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