As cryptocurrencies continue to grow in popularity, more and more people are looking to invest in them. But how should you allocate your crypto portfolio, depending on your investment goals?
In this blog post, we will discuss different portfolio allocations for crypto investments and how they can fit into an overall portfolio.
This article will also describe additional things to keep in mind when constructing a portfolio with cryptocurrency positions.
We will also explore different portfolios based on age and risk tolerance. So whether you’re just starting out in the world of crypto investing or you’re a seasoned pro, we have something for you!
Sidenote: These portfolios are subjective. Different individuals have different definitions of risks so it’s best to take it with a pinch of salt.
We also assume that you’re investing $100,000. You can scale this amount to suit your needs!
Portfolio Allocation 1: The Standard 60/40
The first portfolio allocation we will discuss is based on the standard 60/40 portfolio. This portfolio has been the go-to investment strategy for decades and consists of 60% stocks and 40% bonds.
- $60,000 – Stocks and Equities
- $40,000 – Bonds
- $0 – Cash
- $0 – Commodities
- $0 – Real Estate or REITs
- $0 – Other alternative investments (Art, Collectibles, NFTs, etc.)
- $0 – Crypto
As you can see, this portfolio is heavily allocated to stocks and equities. This is because these asset classes have historically generated the highest returns over the long term.
However, this portfolio does not offer much diversification. The real bond yields are also negative which means that it doesn’t even keep up with inflation.
Let’s see what a more modern portfolio would look like that incorporates crypto.
Portfolio Allocation 2: The Diversified Crypto Growth
This portfolio is much more versatile and gives investors exposure to all asset classes including cryptocurrencies.
- $27,500 – Stocks and Equities
- $5,000 – Bonds
- $10,000 – Cash
- $10,000 – Commodities
- $10,000 – Real Estate or REITs
- $10,000 – Other alternative investments (Art, Collectibles, etc.)
- $27,500 – Crypto
This is a more aggressive portfolio that is heavily allocated to stocks and crypto.
This can be an allocation for the type of investor that wants to stay diversified but also wants to get exposure to the upside potential of crypto.
With 27.5% in crypto and $10,000 on the sidelines in cash, this portfolio can provide buying opportunities in any short-term market downturn.
This portfolio is great for someone that has optimism for the crypto industry but does not want to diverge from more traditional investments.
It’s also a portfolio for someone that has a medium risk tolerance and wants to participate in the new digital economy.
Portfolio Allocation 3: The Crypto Enthusiasts
This portfolio is much more versatile and gives investors exposure to all asset classes including cryptocurrencies.
- $10,000 – Stocks and Equities (Crypto Companies)
- $0 – Bonds
- $10,000 – Cash
- $0 – Commodities
- $0 – Real Estate or REITs
- $10,000 – Other alternative investments (NFTs)
- $70,000 – Crypto
If you want to go all-in on the cryptocurrency industry and blockchain technology, this portfolio is for you.
This portfolio is 100% allocated to companies and projects in the space. This could be a good portfolio for someone that is younger and has a higher risk tolerance.
This is a high-risk crypto-dominant portfolio. However, it shows how you can gain exposure to the industry through different asset classes.
It is not the best portfolio for everyone, but it is an option for those that want to go all-in on crypto.
Portfolio Allocation 4: The Long-Term Risk Averse
If you are a long-term value investor that prefers a less volatile portfolio, this portfolio is for you.
- $50,000 – Stocks and Equities (Blue Chip companies)
- $0 – Bonds
- $10,000 – Cash
- $5,000 – Commodities
- $25,000 – Real Estate or REITs
- $5,000 – Other alternative investments (Art, Collectables etc.)
- $5,000 – Crypto (Bitcoin)
This is a great portfolio for those that are looking to invest for the long term and don’t want the volatility of crypto.
This portfolio is still diversified with different asset classes such as real estate, commodities, and even some alternative investments.
However, it has a much lower risk tolerance than the previous portfolios.
The focus of this portfolio is on preserving wealth while steadily growing it over time.
This is a more traditional portfolio but it still offers some exposure to the high potential returns of crypto without the volatility.
Bitcoin is the choice for this portfolio because it is the most established cryptocurrency with a long track record.
There is a 0% allocation to bonds because the current yields are negative. This portfolio is for the investor that wants stability and doesn’t mind sacrificing some upside potential.
The 10% in cash allows for emergency reserves and also provides some buying power in case of a market dip.
Portfolio Allocation 5: The Yield Farmer
This is for someone that loves cash flow! This portfolio is focused on generating income through different asset classes.
- $35,000 – Stocks and Equities (Dividend Paying Companies)
- $0 – Bonds
- $5,000 – Cash
- $0 – Commodities
- $35,000 – Real Estate or REITs
- $12,500 – Other alternative investments (P2P Lending)
- $12,500 – Crypto (Staked)
They say cash is king. But income is what truly reigns supreme. This portfolio is focused on generating as much income as possible. It does this by investing in asset classes that provide consistent cash flow.
Real estate and REITs are a great way to generate income. And with crypto, staking has become a popular way to generate yield.
Staking is when you hold onto your crypto and receive rewards for doing so. These rewards can come in the form of interest payments or newly minted tokens.
Pairing staking with a dividend-paying stock portfolio can provide a great income stream. P2P lending is another way to generate income through investments. This is when you loan money to someone, and they pay you back with interest.
This portfolio is for the investor that loves cash flow and doesn’t mind sacrificing some upside potential.
The Yield Farmer Portfolio is for someone more interested in receiving consistent passive income rather than exponentially growing net worth.
Portfolio Allocation 6: The Defensive Crypto
Defence is the best offence. This portfolio is focused on protecting your wealth while still providing upside potential.
- $20,000 – Stocks and Equities (Blue Chip Companies)
- $2,500 – Bonds
- $15,000 – Cash
- $7,500 – Commodities
- $35,000 – Real Estate or REITs
- $10,000 – Other alternative investments (Art, Collectables, P2P Lending)
- $10,000 – Crypto (Bitcoin & Ethereum)
This portfolio includes income, inflation hedges, growth potential, and of course crypto. The cash and bonds act as a buffer against market volatility.
Commodities and Bitcoin provide an inflation hedge while real estate and alternative investments offer growth and income potential.
Ethereum is included in this portfolio because it is the second most established cryptocurrency and provides a good balance of risk and reward.
This portfolio is for the investor that wants to protect their wealth while still having exposure to high potential returns.
There is a heavier weighting towards real estate because they are defensive when compared to the more volatile positions such as Ethereum and Bitcoin.
They also provide income which can be helpful in times of market stress.
Pairing real estate with bonds and cash can provide a good foundation for any portfolio. And adding in some crypto exposure can help provide upside potential.
The Defensive Crypto Portfolio is for the investor that wants to protect their wealth while still having exposure to high potential returns.
Portfolio Allocation 7: The Generalist
Generally speaking, most people do not have the time or knowledge to specialise in one asset class. This portfolio is for the generalist that wants a little bit of everything.
- $40,000 – Stocks and Equities (Robo-advisor)
- $5,000 – Bonds
- $10,000 – Cash
- $5,000 – Commodities
- $20,000 – Real Estate or REITs
- $5,000 – Other alternative investments (Art, Collectables, P2P Lending)
- $15,000 – Crypto
With a 40% allocation to stocks and equities through a Robo-advisor, this portfolio provides good exposure to the stock market.
Robo-advisors are a great way to get diversified without having to pick individual stocks. Furthermore, Robo-advisors are likely to invest via an ETF or unit trust, which is a basket of assets.
Through these investment vehicles, the risks you face are lowered as compared to individual stock picks.
The other asset classes are allocated at a lower percentage because they are more volatile. But they still provide exposure to different asset classes and can offer good returns.
They require more skill and time to manage than a Robo-advisor, however, they provide income, upside potential, and reduced volatility.
This is a great portfolio for someone early in their professional career who would prefer to focus on generating income through their job.
The Generalist Portfolio is for the investor that wants exposure to different asset classes without having to spend a lot of time managing their investments.
Allocation Based On Risks (Bear Thesis)
Bitcoin is risky. It’s limited in supply but it may not evolve to support the needs of the global economy.
Ethereum is also risky. It has more functionality than Bitcoin but it’s still in the early stages of development.
All the other altcoins are yet to prove themselves. They may not be around for more than a few years.
So how do you allocate your portfolio based on risks?
The most important thing is to have a diversified portfolio. That means not putting all your eggs in one basket. You should also have an allocation that is based on your risk tolerance.
If you can handle more risk, then you can put a higher percentage of your portfolio into crypto. If you are risk-averse, then you should allocate less to crypto and more to other asset classes.
And when investing in crypto, you should look into crypto “blue chips” such as Bitcoin and Ethereum which are regarded as the (relatively) safer crypto option.
Deploying a ‘Bear Thesis’ helps reduce the risk of overexposure to any one asset.
This is especially important when it comes to investing in something as volatile as cryptocurrency.
Allocation Based on Rewards (Bull Thesis)
Bitcoin has the potential to become the global reserve currency. Sovereign nations are using it as legal tender.
Ethereum has the potential to become the platform that powers the global economy.
Network effects are happening throughout the entire crypto industry.
With that being said, how do you allocate your portfolio based on rewards?
The first thing you need to do is understand what your investment goals are.
If you’re investing for retirement, you’ll have a different portfolio than if you’re investing for a child’s university fund.
Once you know your goals, you can start to allocate your portfolio accordingly.
For example, if you’re investing for retirement, you’ll want to have a mix of stocks, bonds, and cash. Income is also important.
However, you can still invest in Bitcoin and have that as a way to create generational wealth.
And if you’re investing for a child’s college fund, you might be willing to take on more risk and invest more in cryptocurrency because they may live in a world where the value of fiat currencies is much lower.
Just make sure that you’re not putting all your eggs in one basket.
If you are investing to become rich and have confidence in this new digital economy, then you should put a higher percentage of your portfolio into cryptocurrency.
As long as you are willing to lose what you invest and won’t be emotionally attached to your investments, you can afford to take on more risk.
The key is to invest in what you’re comfortable with and not to get caught up in the hype.
There is a lot of optimism and positive developments, but there is also a lot of uncertainty.
A positive attitude can help prevent panic selling and even get you started in this market.
But, it’s important to remember that no one knows what the future holds for cryptocurrency. It could make you rich and financially free or it could make you miserable and bankrupt you.
It’s important to do your own research and make sure you’re comfortable with the risks and rewards before allocating appropriately.
Assuming you are a bull when it comes to the crypto industry, let’s see how we can create crypto-specific portfolios based on risk tolerance, investment goals, and project potential.
These portfolios can fit into the ‘crypto section’ of your overall portfolio.
Crypto Portfolio Allocation 1: The Bitcoin Maximalist
- Bitcoin (100%)
Simply put, you believe that Bitcoin is the only crypto that matters and will survive in the long term.
You’re investing for the long term and believe in Bitcoin’s potential as a global reserve currency.
You’re HODLing til the value of fiat currencies goes to zero. You store your Satoshis in a hardware wallet and you don’t care about the FUD.
This portfolio is for those that are only proponents of proof of work and the problems that it solves.
They don’t see the value in altcoins or tokens that provide utility on smart contracts.
If these cryptocurrencies go to zero, it won’t matter because the SATs still survive.
Crypto Portfolio Allocation 2: The Smartie
- Ethereum (60%)
- Cardano (30%)
- Solana (10%)
Smart contracts are the future and you believe that Ethereum is the best platform to power them.
You’re comfortable with some volatility and are willing to lose what you invest. You believe in Ethereum’s potential to become the platform that powers the global economy.
You also like Cardano because it’s a peer-reviewed process. You believe that Solana has the potential to become the most scalable blockchain in the world and that it could power the next generation of applications.
They are asymmetric bets in your observations.
Basically in this crypto portfolio allocation, you believe smart contract projects will reign supreme and you choose to allocate respectively.
The combination above is a bit more on the risky side, so you can look to spread out your allocations between Cardano and Solana even more and even include projects such as Polkadot, Avalanche, Cosmos, and Near Protocol.
However, we’d personally prefer to keep the majority of this allocation into Ethereum because of its developments.
Crypto Portfolio Allocation 3: The Utility Token holder
- Polkadot (50%)
- Chainlink (30%)
- Aave (10%)
- Cronos (10%)
You believe that utility tokens are the future of the crypto economy. You also believe in Polkadot’s potential to become the most interoperable blockchain in the world.
Chainlink is in your portfolio because it provides secure off-chain data to smart contracts.
As the amount of data required by smart contracts increases, so too will the demand for Chainlink.
Aave is in your portfolio because you believe that interest-bearing digital assets will play a big role in the future of finance.
Cronos is in there because you believe that Crypto.com will be at the forefront to drive cryptocurrency adoption.
You’re willing to take on more risk for the potential of higher returns.
Crypto Portfolio Allocation 4: The Crypto Casual
- Bitcoin (70%)
- Ethereum (20%)
- 5-10 Other Cryptocurrencies (10%)
As someone that is new to the space or doesn’t have a lot of time to research, you want to invest in the two most popular cryptocurrencies.
You’re willing to lose what you invest and are comfortable with some volatility.
You also allocate a small portion of your portfolio (no more than 10%) to other cryptocurrencies that you believe have potential.
These could be altcoins with a low market cap that you believe have potential or even tokens in popular protocols like Compound or Maker.
You are aware that some of these altcoins might end up being worthless, but you are comfortable with losing what you have invested.
This is because it only makes up 10% of your crypto portfolio. You feel like it is a high-risk, high-reward position and you are aware of both potentials.
You’re most bullish on Bitcoin but see the technological and potential upside of smart contracts.
This portfolio is built for HODLing. Check back in about a decade and see how the industry has developed or diminished.
Allocation Based on Psychology
It can be difficult to take exact advice on the perfect allocation for your needs. This is because, as with all investments, there is a certain amount of psychology that comes into play.
What you are comfortable with holding, and the time frame in which you plan on holding it will have an impact on how you ultimately allocate your portfolio.
If you are risk-averse, for example, you may want to hold a larger portion of your portfolio in more stable investments, like blue-chip stocks or real estate.
If you are younger and have a longer time frame for investment, you may be able to afford to take on more risk, and as a result, hold a larger portion of your portfolio in stocks.
It might not be the best idea to have a large portion of your portfolio in volatile stocks if you are prone to anxiety. This can cause you to sell when the market crashes.
In this case, you might want to have a higher portion of your portfolio in cash so that you can sleep at night!
Self-awareness is key when it comes to investment success. If you don’t know your own risk tolerance, time frame, and goals, it will be difficult to find the right allocation for you.
Portfolio Allocation Based on Income Needs
Another aspect to consider is how much income you need from your investments. As well as how much you can consistently invest.
These 2 factors are important because they will help you decide how much to allocate to each asset class.
Start by saving up enough cash to cover 3 to 6 months of living expenses. To determine how much you can consistently invest, subtract your monthly expenses from your monthly income.
If you are retired and living off your investments, you will need a different portfolio than someone who is still working and has a regular paycheck.
If you are retired, you will want to have a higher percentage of your portfolio in income-producing assets and cash so that you can live off the interest and not have to sell your principal.
However, if you are still working, you may be able to afford to have a higher percentage of your portfolio in stocks and growth investments because you have the security of a regular paycheck.
This can help grow your overall portfolio faster.
You also need to factor in taxes. If you are in a high tax bracket, you will want to hold a larger portion of your portfolio in tax-advantaged investments, like a Roth IRA.
However, if you are in a lower tax bracket, you may not need to worry about this as much.
It is important to factor in taxes when allocating your portfolio so that you can maximise your after-tax returns.
For our Singaporean readers, we’re pretty lucky that capital gains from stocks and crypto aren’t taxable (yet).
It is important to remember that your portfolio should be reviewed and rebalanced regularly based on changes in your life, the economy, and the markets.
This will help ensure that your portfolio is still allocated in a way that meets your needs.
A final note, don’t forget about fees!
When allocating your portfolio, be sure to consider the fees associated with each investment.
This can have a big impact on your overall returns.
We recommend FTX if you’re looking for an exchange with the lowest fees and Gemini for making free withdrawals.
Conclusion
The bottom line is that there are many good reasons to invest in cryptocurrencies.
They can help to diversify your portfolio, hedge against inflation, and give you exposure to emerging technologies.
They are also becoming more mainstream as they are being used for a variety of real-world applications.
“Bitcoin looks like a long-duration option on a highly unknown future that I could put an amount of money in that I wouldn’t mind losing about 80% of.” – Ray Dalio
If you’re thinking about investing in crypto, be sure to do your own research and only invest what you’re comfortable losing.
Crypto is a volatile asset class and there are no guarantees when it comes to investing.
But if you’re willing to take on some risk, crypto could be a great addition to your portfolio.
