KiwiSaver is treated by many as a safe investment option for their hard-earned cash and get worried when values change too much. Conversely, Cryptocurrency (in particular Bitcoin) is frequently perceived as a volatile, short-term and even speculative investment for the ‘brave’ investor.
Despite these two options appearing to occupy opposite ends of the investment spectrum, some fund managers believe it’s a mistake to dismiss Bitcoin outright for KiwiSaver portfolios.
Ironically, when your goal is to maximise returns whilst minimising risk, Bitcoin can actually make a KiwiSaver portfolio less volatile!
A Long-Term Investment
KiwiSaver is a long-term investment product and after withdrawing the deposit for their first house, the majority of clients will keep their KiwiSaver investments over 35 years. This long-term investment horizon aligns perfectly with the volatile or cyclical nature of Bitcoin.
Many traditional financial assets, such as shares and bonds, have a low correlation with Bitcoin. This means that when a small amount of Bitcoin is added to a KiwiSaver portfolio, it can help reduce some of the inevitable ups and downs of market cycles.
When constructing investment portfolios Kōura Wealth shows that a 3-4% allocation in Bitcoin is the ‘magic number’ to maximise the risk and return trade-off without making your overall KiwiSaver portfolio strategy a little too risky.
Funds like Kōura limit you to investing 10% of your KiwiSaver portfolio in Bitcoin. Whilst this is higher than the optimal number of 3%, this recognises that there are people who will want to go higher than the optimal number.
KiwiSaver and Bitcoin might initially seem like an ‘odd couple’ at face value, but when we dig below the headlines, they complement each other well when considered from a strategic investment perspective.
Does your KiwiSaver adviser have confidence in Cryptocurrency (in particular Bitcoin) or even understand it?
