Schwab Outlines Approaches to Investing in Cryptocurrencies

Charles Schwab, the largest publicly traded U.S. brokerage firm managing over $12 trillion in client assets, has published a research report on investing in cryptocurrencies.

The report outlines two main approaches: return-based and risk-based.

Under the return-based approach, allocations depend on expected returns. If investors expect higher returns from bitcoin, allocation can be higher, while lower return expectations can lead to very small or no allocation.

Schwarz stated that if an investor assumes bitcoin returns of 15% per year, allocation could be around 1% in a conservative portfolio, about 6.6% in a moderate portfolio, and 8.8% in an aggressive portfolio.

Under the risk-based approach, allocations are based on how much total portfolio risk comes from crypto. According to the report, for a conservative portfolio, around 1.2% allocation to bitcoin or 0.9% to ether can represent 10% of total portfolio risk.