Bitcoin has once again changed the way we do investing. Cathie Wood has recently come out and declared the cryptocurrency should be considered a new asset class. It’s insane growth the past year and growing acceptance has sparked something in the eyes of the investor.
The 60/40 rule investors once swore by is now making people rethink their strategy thanks to Bitcoin. It’s no longer treated as a volatile joke of a currency, doomed to fail. People now see a future for Bitcoin and are hoping to see it grow even more.
What is the 60/40 rule?
So, what exactly is the 60/40 rule? It’s an investment formula created in the 1940’s which found the ideal combination of both stocks and bonds in your portfolio should be 60% in stocks and 40% in bonds.
Now this was created back when bonds produced a whopping 15% return. But since then, bonds have seen a consistent decline year after year.
The Death of Bonds
Bonds started on top. The 60/40 allocation has outperformed portfolios favoring one side or the other, but now that’s much harder to do.
Some experts believe the rule is far to general and doesn’t match many people’s goals or interests. 40% bonds may be far too conservative if you are planning to invest 40 years from now.
Also, the yields produced from bonds is almost a joke. They went from 9.5% in 1989 to now almost 1.6%. An interesting discovery by the Bank of England stated that yields on government debt have been declining since the late Middle Ages. It’s safe to assume that trend won’t break so easily.
Bitcoin As A New Asset Class
Bitcoin has just recently hit all-time highs of $60k. Just 1 year ago, It was only $5k. Such a huge spike in performance was bound to get noticed by the big players.
It’s performance, the bullish predictions of the coin and the decentralized solution against the growing fear of inflation has made Bitcoin a new favorite. With the Government constantly printing money out of thin air, growing our national debt and buying $120 billion per month of bonds to stimulate the economy.
Inflation has officially replaced the number one fear in the market, surpassing even COVID. It’s a real fear and It seems Bitcoin was created to be that answer.
Since it is decentralized, Bitcoin is its own entity and cannot be controlled by banks or any other form of Government. The more people buy into the coin and garner more attention, the higher the value will go. It is already seen as digital gold. Now many people are even predicting it will far surpass the market cap of gold, making it over a million-dollar coin.
It’s now being used as a hedge against the US Dollar, as many large corporations are buying up large sums to hold as a reserve.
What Your Portfolio Should Look Like
The 60/40 allocation rule is no longer a smart move. Many experts believe this rule is dated and needs to be adjusted for a more modern situation. Graham Stephan suggests 70/15/15 is a more realistic breakdown.
I think this is a good portfolio allocation. 70% in Bitcoin…just kidding. 70% in stocks, 15% in bonds and 15% in Bitcoin. If you want to be more conservative with your volatility, I’d recommend maybe a 20% in bonds and 10% in Bitcoin. Play with those percentages to best match your risk tolerance.
I am personally very heavy in Bitcoin, at about 15% of my portfolio. My bond allocation is much lower. Right now, not including the percentage mixed in with my target date fund, I’m at a 5% allocation. I’ve been currently building up my positions in more recovery stocks to protect myself from our economy reopening.
To offset that, I keep a large cash reserve on the side. Both basically don’t earn any money, and I know it loses value to interest every year, but this is one of my strategies against a growing volatile market and to prepare for upcoming purchases in my life.
