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Finding the Right Asset Balance for Your Goals

One way to invest is with a strategy tailored to your age and risk tolerance. Regardless of your specific situation and goals, a well-balanced portfolio could include a variety of assets ranging from stocks and bonds to commodities and crypto.

Gemini-Category Trading & Investing 2

Summary

All investments come with different risks and rewards, so how do you find the right mix of assets and financial instruments? One way to invest is with a strategy tailored to your age and risk tolerance. Regardless of your specific situation and goals, a well-balanced portfolio could include a variety of assets ranging from stocks and bonds to commodities and crypto.

Contents

Why Asset Balance Is Critical

Because of their individual characteristics, different assets behave differently over time, depending on events occurring in the global economy. If, for example, the United States is involved in a military conflict, it makes intuitive sense that American aerospace and defense stocks may surge. Likewise, if fewer people drive cars or travel on planes for an extended period — because of a global pandemic perhaps — then the price of oil stocks and companies that use large quantities of oil may dip. The point is simply to illustrate that events can have dissimilar effects across asset classes, so having a balanced portfolio is key to creating a safe and potentially profitable portfolio. 

Diversifying Assets Based on Your Age and Risk Tolerance

One way to invest is to have a strategy tailored to your age and tolerance for risk. The younger you are, the more you might feel comfortable taking greater risks — and potentially reap greater rewards — because you may not need to access the money you invested for years to come and will likely have time to recoup losses from risky investments over your lifetime. Stocks are generally more volatile than bonds, but have greater upside. A 25-year-old in their first job after college would probably invest more heavily in stocks than a 60-year-old contemplating retirement and in need of stable income for the rest of their life. Whatever your age and risk tolerance, you’re certainly going to want a balanced portfolio.  

Can You Combine Asset Types in a Balanced Portfolio?

Yes, a balanced portfolio usually includes a diversity of assets. The specific investment products will depend on the type of investment account you have (brokerage, IRA, Roth IRA, separate account, etc.) and the investment platform you use (Fidelity, Merrill, E-Trade, etc.). When it comes to company-sponsored accounts like 401(k)s, certain employers offer more investment options and financial instruments than others. Still, in almost all cases, you’ll find investment opportunities that comprise both stocks and bonds. 

Should You Introduce Crypto to a Balanced Portfolio?

Cryptocurrencies are volatile, even when compared to traditional asset classes. But they also have a number of advantages that traditional assets do not. Many cryptocurrencies are not correlated with stocks and bonds, which means that they can help diversify your portfolio. They also have the potential to bring in returns, though of course that comes with increased risk and the potential for losses. Adding crypto to a portfolio for asset balance is a personal decision, based on your own feelings about risk. And as always, it is usually sound advice not to invest more than you can reasonably afford to lose based on your financial needs.

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