What Is The Right Amount Of Money To Invest In Cryptocurrencies? This Is The Financial Advisor's Answer

Financial advisors provide many signs before jumping into cryptocurrency investment. (photo: illustration)

JAKARTA - Crypto assets that fluctuate in world trade, in recent weeks, always tempt potential new investors. However, before actually getting into this cryptocurrency investment, you should pay attention to some advice from financial advisors.

The first rule, is not to invest more than the amount of money you can receive if the investment is completely lost. That rule of thumb is pretty general. But now advisors continue to try to provide a broad picture to establish how much, client's money should be invested in bitcoin and other digital tokens.

Anjali Jariwala, certified financial planner, CPA and founder of FIT Advisors in Torrance, California, says she doesn't recommend any clients invest in cryptocurrencies until "they have a real home."

That means potential investors should have a solid emergency savings account to work with, accumulating a healthy amount for retirement. They must also be able to send their children to college or buy a house.

If clients have checked all these boxes, according to Jariwala, investing in cryptocurrencies can be an option for them.

But how much of their money should be spent on them?

To come up with a figure, borrow from the standard rules how much money should be put in stocks, No more than 3% of their portfolio. Other advisors set their percentage at 2%. “The 5% investment of their portfolio is the highest I've heard from an advisory perspective,” said Jariwala.

Another aspect of investing in cryptocurrencies that is not uncommon is how to balance the investment. If the advisor decides that the client's portfolio should not contain more than 30% of the shares, then they must sell the equity if there is a large increase in the market. This is to keep their share percentage below that threshold.

But recently, Jariwala had a client whose cryptocurrency exposure jumped to 6% from 3%. But he did not recommend the sale.

"I'm okay with them holding on to that investment because I don't like it when people go in and out of investments too quickly," he said. “It is difficult to apply my normal rule of thumb to rebalance investments.”

Alex Doll, a CFP and president of Anfield Wealth Management in Cleveland, Ohio, has his own formula. He recommends clients not to invest more than 10% of their "risky" assets in cryptocurrencies.

Say someone has 70% of their money in equities and other more volatile investments, and 30% in bonds and other forms of fixed income. They can put up to 7% of their money in cryptocurrency. He claims to find clients often like to spread their allocations across various digital tokens, and most often Ethereum and bitcoin.

According to Doll, some people may have to stay away from cryptocurrencies altogether. That includes people who don't have enough money to spend. So are retirees who live off their portfolios.

But at the same time, there may be some people who can invest more in tokens. Even if the situation is limited.

“I think it's OK for someone to invest a larger amount than I recommend if they are young and have a good income stream over many years of a stable job. They also have to really understand the crypto world,” said Doll.

"In this situation, if they lose more than they expected, at least they have time and a sustainable income stream to cover the lost savings," said Doll.

So, if you have the criteria as mentioned above, then you can invest your funds in Crypto. But if you don't or you are retired, you should think a thousand times before investing in this sector.