Bitcoin Deserves Some Space in Your Portfolio
First, Goldman Sachs Group Inc. highlighted Bitcoin as the best-performing asset in terms of absolute and risk-adjusted returns earlier this year. Then the banking crisis happened and the largest digital coin rose to its highest price in ten months. It's enough to make even some naysayers reconsider.
But is this year’s turnaround just a short-lived bubble or evidence of the what-doesn't-kill-you-makes-you-stronger thesis? Views are all over the place. The White House put out an economic report recently slamming crypto, saying the assets don't have fundamental value; while Bitcoin bulls like ARK Investment Management CEO Cathie Wood see its climb as an affirmation of decentralization.
Financial advisers’ takes on whether to invest in Bitcoin yield answers ranging from “Don’t mistake several months of positive performance with a long-term trend. (Remember Enron?)” to “It represents a wealth creation opportunity that we haven't seen in 35 years.”
The question takes on even more significance following the disastrous performance last year of the traditional 60/40 investing model, leading to a rethink of the six-decade-long tradition of retail investors allocating 60% of their portfolios to stocks and 40% to bonds (or some type of combination between the two).
There's no one-size-fits-all answer here. I’m neither a bull nor a bear when it comes to bitcoin, but it’s hard to argue with adding a small allocation as an opportunistic growth play.
Let’s take a look at the numbers. According to Morningstar Inc. calculations, an investor who had a 1% allocation to Bitcoin in a traditional 60/40 portfolio (with the Bitcoin allocation pulled from the equity bucket), would have had slightly worse returns over the past year — a decline of 8.93% versus an 8.77% drop for a traditional 60/40 portfolio. Those numbers aren’t terrible considering Bitcoin tanked close to 40% during that time period.