Liz Young, Head Of Investment Strategy at SoFi, recently shared some advice about when and how to decide which asset classes to allocate in one’s portfolio, during a recent podcast. According to the exec,
“The first rule of portfolio construction is to have asset classes that are not correlated to one another.”
However, on the back of re-emerging inflation, can Bitcoin and other crypto-assets be a saving grace due to the lack of alternatives? After all, “Cash is really not a winning asset in any way, shape, or form.”
Well, the exec believes that a portfolio should have components of “growth, income, and preservation.”
“If you believe that crypto is an asset class that is going to grow over time… It functions as the growth aspect or part of the growth bucket in your portfolio.”
’60/40 portfolio allocation is dead’
Contrarily, cash is technically about ‘losing money’ to inflation. Young argued that the traditional method of 60-40 allocation to stocks and bonds might also not work for the ‘preservation’ of value. That’s where crypto comes into play, with 60-40 likely needing a ‘third component.’
However, for crypto to become a growth component for one’s portfolio, Young investors need to “hold it with the intention of holding it for the long term.”
“If you’re trading in and out of Bitcoin or in and out of crypto. It’s not necessarily a growth component.”
Curiously, these views come on the back of those shared by Paul Tudor Jones. He recently expressed concerns about inflation, adding that “a 60/40 portfolio” is dead. He said,
“You don’t want to own fixed income.”
Instead, he suggested diving into assets like crypto or real estate. Agreeing that “inflation is traditionally bad for bonds,” Young also reiterated the need for commodities. She said,
“You could put crypto in that category…”
CEO of Ark Invest Cathie Wood had also previously commented that the fund’s future exposure to crypto would follow the 60-40 allocation for Bitcoin and Ether.
However, Young believes that crypto might not be considered for “preservation” in the adoption phase. She said,
“Preservation typically has been things that have very low volatility that doesn’t have a lot of movement in the price from day today. Obviously crypto is not that asset class, there’s going to be volatility.”
‘Don’t go all in all at once’
To the first-time crypto investor, Young advised,
“I don’t think you’d have to be all in or all out I think that you can start to kind of dip your toes in the water.”
Instead, she recommended crypto for investors who are looking at long-term time horizons and are willing to stomach volatility along with a bucket of traditional assets.
For the same, Young recommended considering large-cap crypto like Bitcoin for fresh investors. Additionally, she said,
“…you can buy the ETFs that are diversified with smaller amounts of money, you can buy little bits of crypto at a time. And as a newer investor, that’s a really important option to have.”
To smooth some of the risks associated with asset classes like crypto, Young also suggested dollar-cost averaging.
“I would say probably get it in faster, but once a Monday, once every other Monday and just put the same amount in on the same day.”