Risk management is a service offered by portfolio management. A risk-averse investor wouldn’t need to incur any risk because all harm cannot be completely avoided.
A risk-averse investor would rather have higher risk-adjusted returns as an alternative. Naturally, the risk increases as the possible return increases.
To get the best risk-adjusted returns, buyers build portfolios of multiple assets. The assets should ideally have a negative correlation, which will benefit the investor’s diversification.
Nevertheless, building a portfolio with connected assets is also a smart move. Although the portfolio has a higher level of risk, other asset properties may appeal to buyers willing to take a greater risk.
Why diversify a portfolio with gold and bitcoin?
Portfolio diversification spreads risk among unrelated assets. Finding the point at which diversification no longer offers benefits is a challenge for portfolio managers.
In the past, gold has been used to represent stability in a portfolio. By integrating Bitcoin in a portfolio, one can benefit from the upside potential of the cryptocurrency and, at the same time, reduce the risk associated with Bitcoin’s volatility by mixing it with gold.