Charles Schwab: Allocating just 1%–3% of BTC or ETH in a portfolio can significantly impact overall risk characteristics

According to Odaily, a recent study by Charles Schwab indicates that allocating even just 1%–3% of Bitcoin (BTC) or Ethereum (ETH) in an investment portfolio can significantly impact overall risk characteristics. The research points out that both Bitcoin and Ethereum have historically experienced declines of more than 70%, far exceeding the volatility levels of stocks or bonds, so even small allocations can have a noticeable effect during periods of market fluctuation. Charles Schwab proposes two methods for crypto asset allocation:

1. Traditional portfolio theory approach: allocation based on expected returns, volatility, and correlations. However, there is significant divergence in return assumptions; if expected returns are below 10%, even aggressive investors may find it difficult to justify a large allocation.

2. Risk budgeting method: determine the proportion of crypto assets based on the level of risk you are willing to take, shifting the focus from return to risk tolerance. However, the volatility of crypto assets may still exceed expectations.

Charles Schwab emphasizes that crypto assets are highly volatile and not suitable for all investors. Investors should carefully consider their risk tolerance, investment horizon, and familiarity with the assets, and also be mindful of risks such as liquidity, theft, and fraud. (CoinDesk)