Here is How Your Portfolio Would've Performed w/ 1%, 5% and 10% in BTC
It is no longer a secret that bitcoin (BTC) is the best performing asset of the last decade. However, in light of bitcoin’s volatility, many traditional investors are skeptical about how beneficial adding bitcoin to their portfolio would be for their returns.
In the following analysis, we will look at how a traditional portfolio - composed of stocks and bonds - would have performed if bitcoin was added as a constituent.
S&P 500, bonds and bitcoin
To analyze what the impact of bitcoin would be on a traditional investment portfolio, we build a model portfolio that is composed of stocks and bonds on an equally-weighted basis. Then, we will add 1%, 5% and 10% bitcoin exposure to the portfolio and see how it would have performed over the last one, three, and five years.
This gives us the following 1-year, 3-year, and 5-year ROIs:
|Asset Class||1-Year ROI||3-Year ROI||5-Year ROI|
|Stocks (S&P 500 Index)||24.34%||13.50%||10.32%|
|Bonds (US AAA-Rated Corporate Bonds)||14.47%||21.35%||22.85%|
Using these returns figures, we will calculate how our model portfolio would have performed if we had added 1%, 5%, and 10% bitcoin exposure and compare these results to an equally weighted stock and bond portfolio.
Portfolio 1 - Stocks & Bonds
|Portfolio 1||1-Year ROI||3-Year ROI||5-Year ROI|
|Stocks 50%/Bonds 50%/0 BTC||19.40%||17.43%||16.59%|
A stocks and bonds-only portfolio would have generated a total return of 19.40%, 17.43% and 16.59% over a one-year, three-year, and five-year investment horizon respectively.
Portfolio 2 - 1% Bitcoin
|Portfolio 2 (1% BTC)||1-Year ROI||3-Year ROI||5-Year ROI|
|Stocks 49.50%/Bonds 49.50%/1% BTC||21%||26%||57%|
Adding only one percent of bitcoin into our model portfolio also boosts historical ROI quite substantially. In all three of our chosen time horizons, our 1% BTC portfolio has generated higher returns than the stocks and bonds-only portfolio. In light of bitcoin’s often talked about volatility, this may come somewhat as a surprise.
Our 1% Bitcoin model portfolio generated ROIs of 21%, 26%, and 57% over a one-year, three-year, and five-year investment horizon respectively.
The difference in returns between the zero-bitcoin and the 1% bitcoin portfolio becomes especially apparent on a five-year time horizon where holding only one percent in BTC would have more than tripled returns.
Portfolio 3 - 5% Bitcoin
|Portfolio 3 (5% BTC)||1-Year ROI||3-Year ROI||5-Year ROI|
|Stocks 47.50%/Bonds 47.50%/5% BTC||26%||60%||217%|
Adding 5% bitcoin exposure to our portfolio - an amount that many traditional investors would already consider aggressive - would have given our portfolio returns a significant boost.
With returns of 26%, 60%, and 217% (!) over a one-year, three-year, and five-year time horizon, our 5% Bitcoin model portfolio would have aggressively outperformed the zero-bitcoin version of our portfolio.
Portfolio 4 - 10% Bitcoin
|Portfolio 4 (10% BTC)||1-Year ROI||3-Year ROI||5-Year ROI|
|Stocks 45%/Bonds 45%/10% BTC||32%||102%||418%|
Unsurprisingly, our 10% Bitcoin Model Portfolio has the highest historic returns and would have generated a multiple in returns over a three and five-year period than our zero-bitcoin portfolio.
Three-year and five-year portfolio RIOs would have been 102% and 418% respectively. These are the kind of returns that traditional investors - who (still) prefer stocks and bonds - can only dream of.
History ≠ future
For seasoned bitcoin investors, it will come as no surprise that adding bitcoin exposure to an investment portfolio would have substantially increased returns. Bitcoin has generated over a million percent ROI since it was launched in January 2009 and in the last five years, the price of the world’s first cryptocurrency is up by over 4,000%.
While investing in stocks and bonds will most likely generate a decent investment return over a multi-year period, adding bitcoin will likely benefit returns more than harm them. At least, if historical ROI is anything to go by.
Of course, every investor knows that historical performances do not guarantee future reasons. However, that does not change the fact that bitcoin (BTC) remains one of the most promising investments available in the market today.
Stacking some sats alongside your traditional investments may turn out to be one of the best investment decisions in your life.