Jan 20, 2022
Introducing Smart Portfolios with Cryptocurrency Exposure
Digital currency can add to your diversification strategy.
At Stash, we understand that markets and market conditions change constantly. And whether it’s the challenges posed by inflation today, the rapid pace of technological development, or understanding new types of investments like cryptocurrency, Stash wants to help you meet those changes with confidence.
So we’re excited to announce that we’ll be adding cryptocurrency trusts to our Smart Portfolio*. Smart Portfolio is a new type of managed account, introduced earlier this year, that can help take the guesswork out of building a diversified portfolio.
Smart Portfolio doesn’t load up too much on one type of investment, or in too few sectors, which can be critical to weathering market volatility and achieving your long-term financial goals.
It’s a personalized portfolio that Stash’s investment committee of financial experts developed and recommended for you based on your risk profile. And Stash actively monitors and manages the account for you, automatically rebalancing to keep the intended allocation of investments up to date.
Smart Portfolios with cryptocurrency
We’ll be giving you access to cryptocurrency exclusively through Smart Portfolio, and we’re doing it now because we’re confident that the more mature digital currencies, such as Bitcoin and Ethereum, have long-term growth potential and important diversification benefits. Here’s the thing, we’re not making the changes based on investment fads, or because we think it’s trendy. Our investment committee thinks that cryptocurrency is now developed enough as an asset class to introduce into Smart Portfolios, just as bonds, gold or other commodities can be smart choices for your total diversification plan.
Chiefly, we’ll use cryptocurrency trusts as a substitute for a small part of the bond holdings in your Smart Portfolio. While bonds are still an important part of balancing the risk in your portfolio, the current economic environment, which includes inflation and potentially rising interest rates, may affect their performance. We think cryptocurrency may have unique strengths against inflation, which can eat away at your portfolio’s returns over time in the same way that it reduces the purchasing power of your cash.
A leader in cryptocurrency investment
Stash will let you invest in cryptocurrency through funds offered by Grayscale, the world’s largest digital currency asset manager. The company manages more than $35 billion in crypto assets and is a pioneer in offering exposure to crypto through funds.
When you invest in your Smart Portfolio, you won’t be investing directly in cryptocurrency. Instead, you’ll be purchasing shares of something called a Delaware statutory trust (DST). A DST is essentially a regulated investment company, with a structure similar to a mutual fund or ETF, pooling investor cash and streamlining the investment process. And it will give you exposure to cryptocurrency without having the challenges of trading, storing, or safeguarding individual coins or tokens.
So, we’ll be adding two DSTs to Smart Portfolio. The first is called the Grayscale Bitcoin Trust (GBTC), which offers Bitcoin exposure to investors through DST shares. We will add an equal amount of Grayscale Ethereum Trust (ETHE), which offers Ethereum exposure to investors via DST shares.
If you want to learn more about cryptocurrency as an asset, and the Delaware trusts we’ve chosen, you can get more information here and here.
Risks of crypto and Delaware statutory trusts
Putting money into the market involves risk, and you can always lose money when you invest. Cryptocurrency is a particularly volatile asset, meaning it is subject to short-term price swings (up and down) that are generally much more dramatic than what stocks and bonds experience. Additionally, due to the uniqueness of the DST structure, the value of the shares of GBTC and ETHE may change at a different rate than the price changes in Bitcoin and Ethereum. That doesn’t mean that the value of the actual coins inside the trusts does not track the price of the currencies.
Good to know: Despite the volatility of cryptocurrency prices, digital currency has shown remarkably low correlations to the other asset classes in Smart Portfolio. This means that they don’t typically move in the same direction as the other assets and when added in small amounts to the diversified portfolio may actually work to decrease overall volatility.
How Smart Portfolios will change
As a refresher, When you signed up for Stash, we asked you a few questions about your investment style and financial circumstances. We used this information to place you into one of three risk profiles–conservative, moderate, and aggressive. The information you provided also helps us calculate your risk tolerance and investment time horizon. When you sign up for Smart Portfolios, we’ll place you in the portfolio that is designed for the general risk tolerance that you select. (All you have to do is put money—a minimum of $5— into the account, and Stash does the rest.)
Here’s what that means:
- Conservative risk profile investors prefer stability, even if that means smaller gains—but may still want some growth potential for their portfolio. These investors generally will have more bonds, which tend to be less risky, in their portfolios than aggressive or even moderate investors. They may need their money sooner rather than later and cannot endure additional risks. Or they may be closer to their financial goals and don’t need to take as much risk in order to grow their wealth.
- Moderate risk profile investors are looking to build stable portfolios, but may also have the capacity to take on a little more risk in exchange for potentially higher long-term growth. Their portfolios might have slightly greater exposure to stocks than bonds.
- Aggressive risk profile investors may be looking to maximize the long-term growth potential of their portfolio, even if that means sacrificing some stability and incurring greater risk. These investors can own more stocks in their portfolios than bonds. An aggressive risk profile may be right for someone with a longer investing horizon and more need for investment growth, as well as for someone who doesn’t need to dip into their account regularly to come up with cash for routine things.
We won’t be putting a large percentage of any of the portfolios into digital currency. If you’re a conservative investor, your target exposure to cryptocurrency will be about 4%, while moderate and aggressive investors will have about 5% and 6% exposure respectively.
One feature of your Smart portfolio is periodic rebalancing. Rebalancing is the process that keeps the portfolio’s components aligned with the intended risk-based portfolio mix.
Stash designed each Smart Portfolio with a different target allocation of investment categories based on an investor’s risk profile. Based on how the underlying investments move over time, it’s possible an investor’s actual portfolio allocation may drift away from its target. In that case, the portfolio may need to be rebalanced by selling some investments that are overweight and buying others that are underweight in order to get back on track.
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A new look and feel
Additionally, we’ll be changing how we present Smart Portfolios in-app, to include more information on your individual investments. Not only will you get a centralized view of your investments, you’ll be able to click on each category to get a quick summation of what it includes and the percentage of your portfolio it makes up.
Smart Portfolios and the Stash Way
Smart Portfolios also align with the Stash Way, our investing philosophy, which includes investing regularly, thinking long term, and diversification to minimize risk. Our investment team thinks that cryptocurrency can help you further diversify. With Smart Portfolios, you can invest regularly without having to make decisions about where your money should go. Smart Portfolios can also free you from the worry of short-term volatility by making sure you stick to your long-term financial goals.
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Crypto is relatively new and can be volatile. Investments are Delaware statutory trusts and offer indirect exposure to Crypto.
A “Smart Portfolio” is a Discretionary Managed account whereby Stash has full authority to manage. Smart is only available in Growth ($3) and/or premium ($9).
Stash offers three plans, starting at just $1/month. For more information on each plan, visit our pricing page.
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