The Financial Planning Association has published a report assessing the characteristics of Bitcoin and its risk-reward profile as an investment. It concludes that “individual investors can benefit from holding a small amount of bitcoins in a diversified portfolio.”
The Financial Planning Association was formed when the Certified Financial Planners (CFP) and the International Association for Financial Planners merged in 2000. The body serves the interests of the financial planning industry and its practitioners.
The report is authored by Chen Y. Wu, Ph.D.; and Vivek K. Pandey, DBA, CFA, FRM.
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After introducing Bitcoin, the report’s main component delves into a statistical analysis of random trials to show that Bitcoin is beneficial for a portfolio. The data shows that returns are higher, and risk lower, in a portfolio including bitcoins.
Central to the argument were Bitcoin’s past and forecast performance. Significantly, the trials were conducted during the period from July 2010 to December 2013. Bitcoin’s actual returns were, on average, overwhelmingly positive (even relative to other appreciating asset classes) between any arbitrarily chosen start and end dates during this period.
It follows that had the simulations taken place between January and September of 2014, or based on a random simulation of performance after today, that the conclusions would have been different.