Bitcoin’s price swings often scare away investors. But what if adding Bitcoin to your portfolio didn’t mean taking on more risk? That’s the idea put forward by Matt Hougan, a top investment guy. He suggests a rethink of how Bitcoin fits into your investments, potentially boosting returns while keeping things stable.
Beyond the Basic Bitcoin Allocation
Traditionally, people add a small amount of Bitcoin (maybe 1% to 5%) to their usual stock and bond mix. This has generally worked well, giving better returns without much extra risk because Bitcoin doesn’t usually move in the same way as stocks and bonds.
But Hougan proposes a more sophisticated approach. Instead of just taking a little from stocks and bonds to buy Bitcoin, he suggests a more strategic reallocation of your whole portfolio.
New Ways to Mix Bitcoin and Bonds
One idea is to add Bitcoin and increase your bond holdings at the same time. To further reduce risk, you could shift those bonds to short-term government bonds (they’re safer). This balances the added risk of Bitcoin with a reduction in risk elsewhere.
Using historical data, Hougan showed that a portfolio with 5% Bitcoin and more bonds actually did better and was less volatile than a traditional portfolio without Bitcoin. He even showed a portfolio with 10% Bitcoin, 50% bonds, and 40% stocks which performed best while still being less risky than a standard portfolio with just 5% Bitcoin.
The Big Picture: Bitcoin as Part of the Plan
Hougan’s key point is that Bitcoin’s price doesn’t usually move with stocks and bonds. This makes it a useful tool to manage risk when you consider your entire portfolio. Think of it as adjusting your “risk budget”. You can change how much risk you have in stocks or bonds to balance out the risk of adding Bitcoin.
While past performance isn’t a guarantee of future success, the research suggests that Bitcoin can be a valuable part of a well-diversified portfolio. As Bitcoin gets more accepted by regulators and big investors, figuring out the best way to include it in long-term plans is becoming increasingly important. The question isn’t if to include Bitcoin, but how./p>
