Cryptocurrencies are an exciting investment trend, but due to their volatile nature they might not be appropriate for all investors. In this Fool Live video clip, recorded on March 18, Fool.com contributor Matt Frankel, CFP, asks Onramp Invest CEO and cryptocurrency expert Tyrone Ross about who should invest in cryptocurrencies and what role they should play in a well-diversified portfolio.
Matt Frankel: What role can and should cryptocurrency play in a well-rounded investment portfolio? Even if I’m not trying to use it for banking purposes at the moment, what role would it play?
Tyrone Ross: I love how you asked it that way, can and should. What it can do, the asymmetric properties of it, and sharp ratios and diversifier, all of those beautiful things that advisors care about. It does have a place in the portfolio for that. The key is trying to find out, one, for a client, whether they should own it at all. If it helps them get closer to their goals. I’m not here to say that I think it does, but that’s for an advisor to determine based on the risk profile of the client. Also, speaking of risks, how much risk can the client take? If a client comes in and says, “Yeah, tell me about this Dogecoin (CRYPTO:DOGE) thing or Bitcoin (CRYPTO:BTC).” You’re like, “Wait, Mr. and Mrs. Client, your risk profile is a two. Dogecoin is a 22. Why are you asking?” Re-profile the client, and look at the sweet spot as somewhere between 2.5% to 5% of the portfolio. When you look at the improvement, and risk-adjusted returns, and things like that, it’s hard to ignore it. It can be a great add to a portfolio. Should it is a totally different conversation. Where someone is in age, what their goals are. If I’m looking to retire, am I adding Bitcoin that has 80% draw downs to my portfolio? Probably not. If I’m 35 and I’ve come into my own and I have ample liquidity, and I see this as a store of value at some point, or digital gold, or whatever, a venture type bet, sure. I think it all depends on if it should versus what it can do.
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