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If you’ve ever worked with an investment advisor — real or virtual — you’ve likely taken a sort of investor version of the Myers-Briggs test.
What would you do if you experienced a major decline in your portfolio? When choosing investments, do you prefer stability or growth potential?
These questions are meant to gauge your risk tolerance. If you are willing to stomach significant short-term volatility for the chance at higher returns in the long run, you’re generally considered an “aggressive” investor. Those who are more concerned with preserving their wealth are labeled “conservative.”
Generally, aggressive investors hold larger portions of riskier assets, such as stocks, while conservatives prefer the safety and predictability of bonds.
You’d think, then, that cryptocurrency, an extremely volatile asset, would be the exclusive territory of aggressive investors. But that’s not the case among the young and the wealthy.
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Among investors age 21 to 43 with at least $3 million to invest, those who identify as aggressive hold 14% of their portfolios in crypto on average, according to a recent study from Bank of America Private Bank. The average holding among their conservative counterparts: 17%.
So are young, wealthy investors changing the definitions of what it means to be aggressive or conservative? Probably not.
“It’s surprising, but I also think it has to do with the exact moment we’re in,” says Stephane Ouellette, founder and CEO of digital asset firm FRNT Financial. “We don’t have an aggressive, momentum-style market in digital assets that typically attracts aggressive investors.”
“If you’d conducted the survey in 2021, you would have likely gotten very different answers.”
The reasons behind the ‘ironic’ results
A few years ago, when cryptocurrency and other digital assets were skyrocketing, aggressive investors were piling in, Ouellette notes. Many of them pulled out when prices plunged in 2022. Much of the crypto market has rebounded in the past year thanks to a different kind of investor, Ouellette says.
“This whole recovery has been much more driven by ardent bitcoin believers, who view it as somewhat of a hedge outside of the existing financial system,” he says.
In other words, in the current environment — a placid one by crypto’s volatile standards — the true believers are the ones who are holding on. The more aggressive investors, Ouellette posits, are likely to jump back in if and when crypto prices began to take off again.
But still, can something as volatile as a cryptocurrency be considered “conservative” in any sense? Traditional investments, such as stocks and bonds, come with risks, but are ultimately supported by fundamentals, such as corporate earnings and cash flows. Crypto investment is considered purely speculative, with prices fluctuating purely based on investor demand.
It depends on your point of view, says Brad Klontz, a certified financial planner and professor of financial psychology at Creighton University.
“It’s more conservative to own crypto? It goes against all logic,” he says. “A lot of crypto investors are significantly more likely to be anti-establishment, with less trust in the systems, less trust in the government. The ironic thing is, they might feel like it’s less risk to have some diversification out of dollars and out of stocks.”
Such an attitude might make even more sense when considering the needs of a young, wealthy investor. For people looking to build wealth, having a small allocation to crypto can mean adding some serious risk to your portfolio in exchange for the potential to drastically boost returns.
If you already have plenty of money, though, it might take a catastrophic economic failure to derail your portfolio. Crypto, in its role as an alternative form of currency and a theoretical store of value, can provide peace of mind for a certain kind of investor, says Mike Pelzar, head of investments for Bank of America Private Bank. Should the U.S. dollar or broader economy eventually collapse, crypto is viewed by some as an investment that would continue to grow while traditional investments fail.
“Ironically, many of those younger investors actually see [crypto] investments as arguably safer,” he says.
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