The last few days there has been a big run for Bitcoin.

In less than a week and a half it has increased by over 23%.

Now that there are multiple Bitcoin ETFs approved and trading, many people are wondering if they should jump into Bitcoin.

While I have my own opinions of Bitcoin, I am not going to express them here, instead I want to give you a way to think of assets that are more volatile.

In banking, the regulatory framework they have to comply with dictates a classification of assets.

As assets move up in their risk score they also have a higher tier classification. Banks are then required to reserve more capital/cash based on how their assets are allocated in those tiers.

Although the goal is to obtain a higher return with the assets with more inherent risk, it also creates additional ‘cash drag’, meaning that they have more cash just sitting in their reserves to help them stay compliant with the regulation.

Many banks are very good at this, and some of them really try to push the limits or completely ignore them unless there is an auditor in their office.

The problem that I see with individual investors is when they don’t follow a structure in their investing. The greed gets the best of them and they end up chasing returns only to be disappointed when they lose huge chunks of principle.

The goal for you is to break up your retirement income producing assets into 3 categories.

Money you can’t afford to lose – this should be your solid income base to cover your base level expenses throughout retirement years. This should have a very low risk score and create guaranteed and predictable cash flow.

Money you are ok losing some of – this bucket of money is for assets you are willing to take on a bit more risk to try and get a higher return but after proper due diligence you are fairly confident it will produce as expected but there still are some risks at hand.

Money you are ok losing all of – this is the ‘swing for the fences’ type money. You may be rewarded handsomely for stomaching the risk on these assets, but also it shouldn’t surprise you or break you financially if these assets took a giant nose dive and you lost everything.

So when you evaluate assets to invest in first ask yourself, do I already have my base level inflation adjusted expenses covered and locked in? When the answer is yes then move onto those riskier tiers of  assets to increase your lifestyle or help create more generational wealth.