Finance
‘A little goes a long way’
Tara Moore | Stone | Getty Images
Katherine Dowling has an analogy that may be useful for investors thinking of buying cryptocurrency like bitcoin and wondering what amount is appropriate.
It’s “like cayenne pepper,” said Dowling, general counsel and chief compliance officer at Bitwise Asset Management, a crypto money manager. “A little goes a long way” in a portfolio, she explained earlier this month at Financial Advisor Magazine’s annual Invest in Women conference in West Palm Beach, Florida.
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Ivory Johnson, a certified financial planner and member of CNBC’s Financial Advisor Council, said the description is apt.
“The more volatile an asset class is, the less of it that you need,” said Johnson, who founded Delancey Wealth Management, based in Washington, D.C.
A 2% or 3% allocation is ‘more than enough’
Cryptocurrencies are digital assets, a category that should be considered an “alternative investment,” Johnson said.
Other types of alts may include private equity, hedge funds and venture capital, for example. Financial advisors generally consider them separate from traditional portfolio holdings like stocks, bonds and cash.
Allocating 2% or 3% of one’s investment portfolio to crypto is “more than enough,” Johnson said.
Let’s say an asset grows by 50% this year, and an investor holds a 1% position. That’s like having a 5% position in another asset that grew 10%, Johnson said.
Whether investors buy in to crypto — and how much they hold — will depend on their tolerance and capacity for risk, Johnson said.
For example, long-term investors in their mid-20s can afford to take more risk because they have ample time to make up for losses. Such a person may be able to stomach substantial financial losses and may reasonably hold 5% to 7% of their portfolio in crypto, Johnson added.
However, that allocation would most likely not be appropriate for a 70-year-old investor who can’t afford to subject their nest egg to major losses, he said.
“Bitcoin and other cryptocurrencies are a very speculative investment and involves a high degree of risk,” investment strategists at Wells Fargo Advisors wrote in a note last year. “Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment, and a potential total loss of their investment.”
Crypto is ‘an incredibly volatile asset’
Crypto prices have been on a wild ride lately.
Bitcoin, for example, surged to an all-time high earlier in March. It topped $73,000 at its peak, though it has since retreated to less than $69,000.
Bitcoin prices had collapsed heading into 2022, and shed about 64% that year to below $20,000. By comparison, the S&P 500 stock index lost 19.4%.
Prices have since quadrupled from their low point in November 2022, as of late Wednesday. They’ve soared more than 50% year to date, while the S&P 500 is up about 9%.
Bitcoin is about eight times as volatile as the S&P 500, Johnson wrote in a Journal of Financial Planning article in December 2022, citing data from the Digital Asset Council for Financial Professionals.
The Crypto Volatility Index was about six times higher than the CBOE Volatility Index as of Wednesday.
“It’s still an incredibly volatile asset,” Bitwise’s Dowling said. “It’s not for everybody.”
Investing in crypto became easier for many investors after the Securities and Exchange Commission approved a slew of spot bitcoin exchange-traded funds in January, in a first for the asset class.
Investors may wish to consider dollar-cost averaging into crypto, Johnson said. This entails buying a little bit at a time, until reaching one’s target allocation. Investors should also rebalance periodically to ensure big crypto profits or losses don’t tweak one’s target allocation over time, he said.
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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