![]() However in this scenario if the price of Bitcoin changes drastically, the % allocation we have for Bitcoin will also fluctuate drastically. In our previous example, we took at 60/40 portfolio and allocated 10% to Bitcoin. The case for Tolerance based rebalancing - What is it, and how does it work? Sharpe ratio ended up staying roughly the same, so the risk adjusted returns did not improve.Max drawdown is a lot worse at -45.28%! From the graph you can see it is due to the Bitcoin drop starting Dec 2017.Annualized return improved to 15.43% from 6.27%.Prior to this date, Bitcoin was extremely niche and hence price then has less relevance in conducting back tests.Īs you can see, adding 10% Bitcoin to the traditional 60/40 has drastically improved returns, but unfortunately at the cost of some nasty price swings: Furthermore, we changed the starting date to Jan 2014. This means that the other 90% is split 60/40 between stock and bonds (54% and 36% respectively). ![]() In this scenario, we adjust our portfolio to include 10% Bitcoin. Bitcoin is the most traded and original cryptocurrency. ![]() It has had a long enough history, while other cryptocurrencies don’t go as far back.So what happens when we add crypto into the equation? For our calculator, we use Bitcoin performance as proxy for the crypto market since: when we get reliable Bitcoin price data), the traditional 60/40 portfolio on an initial investment of $10,000 had the following stats: Adding 10% Bitcoin to the 60/40 Portfolio Aggregate Bond ETF as proxy for bond allocation - ETF that tracks a broad market weighted portfolio of US denominated investment grade bonds.įrom Oct 2012 (the start date in our calculator i.e. SPY SPDR S&P500 ETF as proxy for stock allocation - One of the most liquid ETFs that mimics the performance of the S&P 500 largely considered the equity index benchmark.In our calculator, we use the following well-recognized ETFs: So before adding any allocation of crypto into our portfolio, this traditional portfolio gives us a “base case” to compare to. In traditional finance, an allocation of 60% to stocks and 40% to interest bearing securities such as bonds (60/40 portfolio) is the defacto standard.Ī portfolio that holds both stocks and bonds has historically shown to provide better risk-adjusted returns than a pure stock portfolio, both from a Sharpe Ratio and a Max Drawdown perspective. SPY and AGG etfs are used for the 60/40 portfolio below.) Investment drawdown calculator how to#In this research piece, we will go through in detail on how to use this nifty tool and also highlight some scenarios for discussion. There are already some similar research reports out there that walk potential investors through the scenarios of adding a % allocation of crypto to their portfolio, but here at CoinFi we decided to take it to the next level and built out a calculator for readers to experiment with. In both cases, stomaching price swings has been no joke, and this ultimately leads us to ask: How much of my money should I allocate to Crypto? On the flip side, those who got in just over a year ago when BTC was trading $2057 and HODLed were rewarded with a +227% return on their investment, with BTC trading $6,727 today. In 2017 HODLers were taken on a rollercoaster ride, seeing BTC price start at around $1,000 in January 2017 surge rapidly towards the $20,000 level by December, and then fall sharply to $6,500 just two months later.įor those who got in late, the drawdown in BTC price was painful, and this sell-off has left many out there licking their wounds. Following piece was written on July 17th 2018.Ĭrypto investing is not for the faint of heart. ![]()
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