Schwab Warns of Portfolio Risk from Modest Crypto Allocations

Financial services giant Charles Schwab has released a white paper exploring the allocation of cryptocurrencies in investment portfolios. The report provides two approaches for investors to consider: return-based and risk budgeting.

The return-based approach factors in expected returns, volatility, and correlation with other assets. According to this method, conservative portfolios might hold around 1% in Bitcoin, while aggressive ones could allocate up to 8.8%. Ethereum allocations are smaller across all risk profiles, due to its higher volatility.

Schwab noted that if expected annual returns for either asset fall below 10%, neither may justify any allocation. The firm highlighted the risks associated with cryptocurrencies, including high volatility and potential losses.