Asset Allocation

If you want to make money slowly (that's the best way) then the two most magical words are "Asset Allocation." That simply means what percentage of your savings do you have in the various types of investments you could make, at any one time, e.g., what percentage should you have in crypto "vs." more traditional investments, as a young person or as an older person?

There's no simple agreed classification of asset types but you will probably end up with something like this

1. Cash
2. Equity
3. Fixed Interest
4. Property
5. Other - e.g. gold or bitcoin and other cryptos, paintings, vintage cars ....

Equity

Equity means you own a share of a company and so receive a share of profits (AKA earnings) that might be distributed each year as dividends. Shareholders get to vote in decisions made by the company. You might say the fair price for any one share might be 15 times current year earnings of that company divided by the number of shares. We call that ratio the price to earning ratio or pe ratio. If profits are expected to go up then the market value of shares goes up, and vice versa on the way down. With inflation companies with pricing power make more profits (as they can charge more for their product).

Fixed Interest

Company's can raise funding by issuing shares (that's equity) or by issuing debt (on the credit markets). Rather than owning a share of unpredictable profits you now get a fixed interest on the money you lent for the term in years that you lent it, which is entirely predictable. We call these fixed interest loans as bonds. Investment grade bonds are issued by big companies with great credit ratings that are really unlikely to go bust. Non investment grade or junk bonds are more risky companies. The former can borrow at lower rates that the latter. Governments and other public organisations can also borrow on these credit markets. Generally you must pay more for a long term loan but less for a short term one. If interest rates go up - then existing issued bonds fall in value - you can lend to the same company now for more. Conversely if interest rates fall then bonds go up.

Property

This means both residential (your home) and commercial ( like offices, shopping centres or warehouses.) Often commercial property is sold to investors as part of a mutual fund. One problem here is liquidity. If markets fall and it becomes hard to sell commercial property then open ended mutual funds cam be closed and you cant access your money for a while - maybe some years.

Other

This is where I would put gold and items like valuable paintings, watches, fine wines etc.

Crypto

So where does crypto fit into an investment asset allocation? You could think of bitcoin (BTC) as just like digital gold but with a different risk. However it is not as simple as that. What do we do with a DAO utility token (AKA DAO native token?)

This DAO native token has properties of money or cash. We use it to price goods and services (unit of account), in exchange and we have a reserve fund to control, volatility to say fiat (store of value. BUT. You can also stake it for reward like a bond for interest. You can vote with it, like an equity. And if we let the exchange rate float against fiat then it could go up or down compared to fiat as our DAO economy adds or destroys value. A bit like one currency vs another currency.

So what is it?