Bitcoin Soars in 2024: How Much Should You Own?

In 2024, Bitcoin prices skyrocketed, making it the top-performing asset class of the year with a remarkable 125% increase. For comparison, the S&P 500 only grew by 23% during the same period. This surge in Bitcoin’s value has caught the attention of many investors, but is it a good idea to dive headfirst into the world of cryptocurrency?

Financial experts advise caution when considering investing in Bitcoin or other cryptocurrencies. They suggest that cryptocurrency should generally only make up a small portion of your overall investment portfolio, typically no more than 5%. This is due to the extreme volatility of digital currencies, which can lead to significant fluctuations in value.

According to Ivory Johnson, a certified financial planner, and founder of Delancey Wealth Management, it’s important to treat Bitcoin as a high-risk asset and adjust your portfolio accordingly. “Whenever you have a real volatile asset class, you need less of it in the portfolio to have the same impact as traditional assets like stocks and bonds,” Johnson explained.

So why did Bitcoin prices surge so dramatically in 2024? One major factor was the U.S. presidential election, which resulted in a victory for Donald Trump. His administration’s anticipated embrace of deregulatory policies is expected to boost demand for cryptocurrencies, driving up prices.

Despite the potential for high returns, investing in Bitcoin comes with significant risk. Amy Arnott, a portfolio strategist for Morningstar Research Services, warned that cryptocurrencies like Bitcoin and ether are much more volatile than traditional investments like stocks and bonds. In fact, Bitcoin has been nearly five times as volatile as U.S. stocks since 2015.

Experts recommend a conservative approach to investing in Bitcoin. BlackRock, a global investment management firm, suggests allocating 1% to 2% of your portfolio to Bitcoin as a reasonable range. Going beyond this could significantly increase the overall risk of your investment portfolio.

Ultimately, the decision to invest in Bitcoin or other cryptocurrencies should be based on your individual risk tolerance and investment goals. Younger, more aggressive investors may be more inclined to allocate a larger percentage of their portfolio to cryptocurrency, while more conservative investors may choose to avoid it altogether.

If you do decide to invest in Bitcoin, experts recommend using a dollar-cost-averaging strategy, where you gradually buy small amounts over time rather than investing a large sum all at once. This can help mitigate the impact of sudden price drops.

In conclusion, while Bitcoin has shown impressive growth in recent years, it’s essential to approach investing in digital currencies with caution and a long-term perspective. By carefully considering your risk tolerance and investment objectives, you can make informed decisions about whether or not to add Bitcoin to your investment portfolio.