An analysis says adding just 1 percent of cryptocurrencies to a portfolio can noticeably change its overall risk characteristics.

CoinDesk reported on April 7 that Charles Schwab, one of the largest U.S. online brokerages, said in a recent report that when deciding how much crypto to include, how much risk an investor can tolerate matters more than return forecasts.

The report classified bitcoin (BTC) and ethereum (ETH) as representative highly volatile assets. Schwab said that regardless of how much is allocated to cryptocurrencies, a portfolio’s volatility is likely to increase. It said both assets have experienced drawdowns of more than 70 percent in past cycles, far exceeding typical declines in stocks and bonds.

Because of such volatility, the report’s main point is that even a small allocation can contribute disproportionately to risk. Schwab said that even a low single-digit share of cryptocurrencies can account for a meaningful portion of a portfolio’s total risk. It said that in periods of market stress, even a 1 to 3 percent allocation can materially change how a portfolio is shaken.

Schwab presented two approaches to increasing cryptocurrency exposure. The first is to calculate the allocation by assuming expected returns, volatility and correlations, as in traditional portfolio theory. It said expected-return assumptions for cryptocurrencies vary widely by investor, and small differences in premises can significantly sway recommended weightings. The report said that if expected returns are set low, the rationale for allocation also weakens. It said that if expected returns are below 10 percent, it may not be enough risk-adjusted return to justify a meaningful allocation even for aggressive investors.

The second is a risk-budget approach. It sets in advance how much cryptocurrencies should contribute to total portfolio risk, rather than trying to forecast returns. Schwab warned that even within a set risk budget, crypto volatility could increase more than expected.

The report said there is no single correct allocation to cryptocurrencies and that responsibility for the decision is largely personal. It said investment horizon, understanding of digital assets and ability to withstand losses all play a role. It also defined cryptocurrencies as still a speculative investment and said such assets and related products are not suitable for everyone. Citing risks such as illiquidity, theft and fraud, it said that even if diversification benefits or high return potential exist, cryptocurrencies are closer to high-risk satellite assets than to a portfolio core.