If you have $1,500 on hand to invest, you want to catch at least some growth. The question is: How much risk are you willing to take for that growth?
In this vein, it is worth considering whether to buy assets at the riskier end of the spectrum, ie Bitcoin (CRYPTO: BTC)or if it would be better to buy some safe asset, like SPDR S&P 500 ETF Trust (NYSEMKT: SPY ). There’s only one right answer, so let’s see which option is the best use of your $1,500.
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Bitcoin’s return profile is unlike anything else in the public markets.
Over the past three years, its price has risen 236%, beating the market’s 83% gain. Meanwhile, over the past 12 months, it has fallen by 15%, undermining the market’s 22% growth. Its volatility is 3 to 4 times that of US stocks. But it is this balance that makes a small allowance for Bitcoin very useful.
Grayscale Research conducted a few simulations and found that the Sharpe ratio, which is a calculated measure of risk-adjusted return for a given portfolio, increases as Bitcoin is added to a traditional portfolio of 60% stocks and 40% bonds, with a risk-adjusted return of B5% approaching 5%. The value of the portfolio before the level is closed.
According to similar studies by Galaxy Asset Management, going from a 0% allocation to a 5% allocation to bitcoin would see annual portfolio returns jump from 10.2% to 14.1% between 2020 and 2025, with only a little added volatility.
Even before considering the asset investment thesis, which suggests that as a low-value store, it will remain in demand despite less and less supply being mined, this data makes a strong case for buying and holding 5% of your portfolio value in Bitcoin, assuming your portfolio is already sufficiently diversified with other investments.
Let’s not mince words here: If you’re reading this, you’d be better served by buying an index fund with your $1,500.
The SPY’s 20-year annualized return is about 10.7%. It’s a powerful growth engine for compounding the value of your capital, and it gives you exposure to all the largest public companies in the United States, meaning it’s also highly resistant to downturns in any particular company or sector. In addition, the price of an ETF that tracks an index is driven, at least in part, by the growth performance of the earnings and revenues that make up the index.
