The investment star of 2021 - perhaps more aptly described as a comet - was crypto currency. There is no doubt that 2021 was the year that crypto became a topic of mainstream conversation. Whether it sustains or burns out as some comets do, only time will tell.

But in the meantime, many investors are wondering whether they should be adding crypto to their portfolio. Well, here's our take:

As a global investment manager, Vanguard has a fiduciary responsibility to clients. To deliver on that, we use rigorous frameworks and portfolio models. Before we add a new asset to the mix, we evaluate its investment merits and ability to generate positive real returns over time. A key principle underpinning this analysis is valuation. When asset managers evaluate an investment case and think about an investments risk and return potential, they usually compare the price of the asset versus an estimate of its fair value, which is based on a discounted cash flow analysis.

Unlike shares or bonds, cryptos do not generate an income stream of dividends or interest payments, thus they possess no intrinsic value upon which to anchor an investment decision. The same could be said of gold, art, wine or collectables generally.

So, when it comes to valuation with crypto, the best you can do is guess. And as exciting as crypto may be, guessing is never good enough when it comes to client money that has been entrusted to us to manage.

For investors adding crypto exposure to their portfolio, it would mean reducing their allocation to traditional asset classes, such as stocks, bonds and cash, which Vanguard views as the building blocks of a prudent, well balanced investment program.

Perhaps a valuation model or framework will evolve in time but until (or if) it does, we are viewing crypto as highly speculative and worth only what the next person is willing to pay. So, along with gold, it's staying out of Vanguard's standard asset allocation models.

And while all this crypto proliferation certainly is exciting, investors should also consider the risks before diving in. While the experience of watching an exotic new crypto purchase grow exponentially in little time can certainly be exciting, remember that without the benefit of diversification, volatility will go both ways. There is no doubt some people have made a lot of money from crypto and many more will make money in the future. Others have lost significant amounts and many more will likely join those ranks too, but what is interesting is, no-one can honestly explain why.

For that reason, we are not bullish on crypto, nor are we bearish on it as an investment. Instead, we remain agnostic and urge investors to exercise caution and not to stray too far from the time-tested investment approaches based on positive real returns and enduring economic rational. The fact of the matter is that being boring works when it comes to building your long-term wealth.

It is also worth remembering that crypto lacks much of the regulatory oversight and protections that govern most mainstream investment markets. There is considerable evidence that like most unregulated markets, the cowboys and fraudsters are making hay while they can so caveat emptor.

Duncan Burns, Head of Investments & Equity Index Group, Asia Pacific