Do you make the mistake of thinking bitcoin is risky?
Working with family offices I learned that risk reduction is the key to wealth preservation.
How do you reduce risk? Step number one is to ensure your assets don’t move up and down at the same time.
Said in another way — risk is largely driven by correlation.
When we look at risk from the perspective of our entire portfolio we find that correlation plays a bigger role in portfolio risk than the volatility of individual assets.
Interestingly enough — adding assets like bitcoin that have HIGH volatility but are not correlated to the other assets in your portfolio actually REDUCES your total portfolio risk.
This might seem like an oxymoron and it reminds me a bit of low fat diets.
It took me years to get people to believe that adding fat to their diet would actually help them lose weight.
‘So you are telling me adding fat makes me lose fat?’
ELI5: Movement is risk. The more things move the riskier they are.
Imagine your portfolio is a box suspended in space with bouncing golf balls inside. 100 balls bouncing slowly in rhythm will move the box considerably.
Adding 5-10 fast moving balls that are moving in random, non-correlated, directions will tend to reduce the overall movements of the box.
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