December 25, 2024

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Katherine Dowling has an analogy that might be useful for investors considering buying a cryptocurrency like Bitcoin and wondering what the right amount is.

Dowling, general counsel and chief compliance officer at cryptocurrency fund manager Bitwise Asset Management, said it’s “like chili peppers.” “A little goes a long way” in a portfolio, she explained earlier this month at Financial Advisor Magazine’s annual Women in Investing conference in West Palm Beach, Florida.

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That description is apt, says Ivory Johnson, a certified financial planner and a member of CNBC’s Financial Advisory Board.

“The more volatile the asset class is, the less you need,” said Johnson, founder of Washington-based Delancey Wealth Management.

A 2% or 3% allocation is “more than enough”

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Cryptocurrency is ‘an extremely volatile asset’

Citing data from the Digital Asset Council of Financial Professionals, Johnson wrote in a December 2022 Financial Planning Journal article that Bitcoin is about eight times more volatile than the S&P 500 Index.

this Cryptocurrency Volatility Index About six times the original CBOE Volatility Index As of Wednesday.

“It remains an extremely volatile asset,” Dowling said. “It’s not for everyone,” she added.

Investing in the cryptocurrency has become easier for many investors after the U.S. Securities and Exchange Commission approved a series of spot Bitcoin exchange-traded funds in January, a first for the cryptocurrency industry.

Johnson said investors may want to consider dollar-cost averaging in the cryptocurrency space. This requires buying a little at a time until the target allocation is reached. He said investors should also rebalance regularly to ensure that large cryptocurrency profits or losses don’t shift target allocations over time.

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