Portfolio

The mix

How a portfolio is split across asset classesAsset classA group of assets that earn returns in similar ways and follow similar rules, such as shares, bonds, property, cash deposits and commodities. is called its mix, or asset allocation. It does more than anything else to decide how the portfolio fares. A portfolio mostly in deposits and government bonds swings little. One mostly in shares and crypto can grow faster, but can also fall a long way in a short time.

Three things usually shape the mix:

• Goals. What is the money for? A deposit on a flat in two years calls for a different mix than saving for retirement.
• Time. The longer the money can wait, the more time the assets have to recover from falls.
• Risk toleranceRisk toleranceHow much risk and how many price swings you can bear, financially and emotionally, without it upsetting your life or your decisions.. How big a fall can you take, financially and emotionally, without selling?

Diversification and rebalancing

One of the main aims of a portfolio is DiversificationDiversificationSpreading your money across different assets so that a fall in one of them has less effect on the whole.: making sure one shock doesn't hit everything. Assets that don't move together balance each other out.

Over time the mix changes by itself, because some assets rise more than others. If crypto rises a lot, it can become a much bigger part of the portfolio than intended. Some people therefore rebalance regularly, selling part of what has risen most and buying what has lagged, so the risk stays where they meant it to be.

Crypto in a portfolio

Many people who own crypto see it as one part of a bigger portfolio, not as all their savings. Because it swings so much, a small share can have a big effect on the whole, both up and down. There is no single right proportion, and what suits one person won't necessarily suit another.