Charles Schwab: Allocating just 1%–3% of your portfolio to BTC or ETH can significantly impact the overall risk profile.

A recent study by Charles Schwab shows that even allocating just 1%–3% of a portfolio to Bitcoin (BTC) or Ethereum (ETH) can significantly impact overall risk characteristics. The study points out that both Bitcoin and Ethereum have historically experienced declines exceeding 70%, far exceeding the volatility of stocks or bonds. Therefore, even small allocations can have a noticeable impact during periods of market volatility. Schwab proposes two methods for allocating crypto assets: 1. Traditional Portfolio Theory: Allocating based on expected returns, volatility, and correlation. However, this approach suffers from significant differences in return assumptions; if expected returns are below 10%, even aggressive investors may find it difficult to sustain large allocations. 2. Risk Budgeting: Determining the proportion of crypto assets based on willingness to accept risk, shifting the focus from returns to risk tolerance. However, crypto asset volatility can still exceed expectations. Schwab emphasizes that crypto assets are highly volatile and not suitable for all investors. Investors should carefully allocate their assets based on risk tolerance, investment horizon, and familiarity with the assets, while also being aware of risks such as liquidity issues, theft, and fraud. (CoinDesk)