Charles Schwab is cautioning investors about the significant impact of digital assets like Bitcoin and Ether on portfolio risk. The financial services firm suggests that even modest cryptocurrency allocations can drastically alter overall portfolio behavior.
Schwab outlined two frameworks for crypto allocation: one based on traditional metrics like returns and volatility, and another focused on risk budgeting. The firm emphasizes that there is no single correct allocation weight for cryptocurrencies, with the decision being highly personal and dependent on factors such as investment horizon, loss tolerance, and familiarity with digital assets.
The firm's primary concern is volatility. Data shows Bitcoin and Ether exhibit considerably higher annualized volatility and maximum drawdowns compared to traditional assets like US large-cap equities or fixed income. This underscores Schwab's warning that even small crypto positions can disproportionately affect portfolio performance.
Schwab's analysis indicates that allocation percentages vary significantly based on assumed annual returns and investor risk profiles. For instance, a 15% assumed annual return for Bitcoin could translate to allocations ranging from 1.0% in conservative portfolios to 8.8% in aggressive ones. For Ether, which is historically more volatile, these allocations are lower. If expected returns fall below 10%, Schwab suggests that neither Bitcoin nor Ether might justify an allocation even for aggressive investors based on risk-adjusted returns.
A risk budgeting approach, focusing on capping crypto's contribution to total portfolio volatility, also results in low suggested weights. For example, to limit crypto's share of total portfolio volatility to 10%, conservative portfolios might only require a 1.2% Bitcoin allocation or a 0.9% Ether allocation.
This guidance comes as Schwab continues to expand its digital asset offerings, with plans to launch spot Bitcoin and Ether trading in the first half of 2026, complementing existing ETF and futures products.