Should Investors Put Crypto in Their Retirement Accounts? (2024)

Cryptocurrency has gained so much traction that it has some people thinking that it might be a good investment for retirement. In fact, according to the 2022 Investopedia Financial Literacy Survey, about one-third of investors under the age of 55 planned to rely on cryptocurrency during retirement.

This might sound like a risky plan, considering the volatility of the crypto market, and it is.

Is Cryptocurrency a Good Long-Term Investment?

Since 2009, Bitcoin has ranged in price from a few dollars to about $69,000. Early bitcoin investors have experienced massive returns, but not all coins have fared so well. With thousands of cryptocurrencies to choose from, investors have had mixed results, to say the least.

That said, crypto topped the list of best-expected returns among those ages 18 to 55 in the 2022 Investopedia Financial Literacy Survey. Among millennials, 30% expected that crypto returns would top stocks, real estate, and mutual funds.

But time will tell if those expectations were founded in reality. For now, it’s too early to know if cryptocurrency will be a good long-term investment. For most investors under age 55, retirement is more years away than cryptocurrency is years old. When you add to that the fact that those same investors who expect big returns don’t fully understand what they are putting their money in, it can be a bit alarming.

In Investopedia’s survey, across age groups, more than 40% of respondents said cryptocurrency was too risky or too confusing. Among millennials, specifically, 44% said that cryptocurrency was too confusing or risky for their money. About 58% of baby boomers said that cryptocurrency was too confusing.

Less than half of millennials stated that they could explain how cryptocurrencies work, while only 5% of baby boomers thought they could explain cryptocurrencies—and only 3% understood non-fungible tokens (NFTs) well enough to share how they work with someone else.

So, while it is clear that cryptocurrency can be a novel and sometimes trendy new asset class, it’s also extremely risky and volatile. You may want to think twice and consult a financial planner before leaning on crypto for your retirement planning.

What to Look for When Choosing Retirement Investments

As you’re building your retirement portfolio, it’s critical to consider several essential factors, such as:

• Expected growth rate: An important investment fundamental is the expected growth rate. Stock market and bond investors rely on various valuation models to predict growth. That’s trickier with cryptocurrencies.
• Risk and volatility: Both stock and bond markets have decades of historical data and risk measurement frameworks. Not only are cryptocurrencies riskier and more volatile than stocks or bonds, but measuring their risk is also more complex. The number of models available to measure cryptocurrency risk is limited due to its youth.
• Cash flow: Many investments offer predictable dividends, bond coupon payments, and other forms of cash flow. Here, several cryptocurrencies provide an edge over more traditional investments thanks to staking and yield farming. It is possible, however, that these newer systems will no longer function the same way down the road when you retire.

Of course, just because something is new and untested doesn’t necessarily mean it’s a bad investment. The final decision on where to put money is up to the investor, so they should weigh the pros and cons every time before making a decision.

How to Build a Core Retirement Strategy

What is the appropriate investment amount for you to invest? It depends on various factors. First, you should calculate your financial needs for retirement. Then, determine the allocation of investments and contributions needed to get there.

Traditional retirement strategies generally combine assets to reach typical retirement investing goals, often relying heavily on tax-advantaged 401(k) plans and individual retirement accounts (IRAs). In addition to crypto-specific and entirely self-directed traditional and Roth IRAs, some traditional brokerage firms are beginning to add cryptocurrency to traditional retirement accounts. So, if you're convinced this is your path forward, it's best to consult a financial advisor before putting your money into such a risky asset.

Of all the investments you can make in a lifetime, retirement accounts are arguably the most important. And if you go big on crypto—or only invest in cryptocurrency for your retirement—you may be forced to reconsider your current or future plans with little notice.

Where Crypto Fits Into an Investment Plan

Due to the risk, volatility, and difficulty predicting the future of cryptocurrency, most investors should avoid including crypto in their retirement investments altogether. If you decide to include cryptocurrencies, keeping them as a smaller portion of your overall portfolio may be wise.

Unless you’re a firm believer in cryptocurrency who wants to take advantage of the tax savings a cryptocurrency IRA can offer, you may be better off keeping cryptocurrency as a relatively small portion of your overall portfolio and out of your retirement.

Many investment experts suggest keeping the bulk of your retirement assets in the stock market, preferably in low-fee, diverse exchange-traded funds (ETFs). High-risk alternative investments are still fair game but should be reserved for a portion of your investments that are not critical to your livelihood in the future.

The Bottom Line

When building your cryptocurrency investment strategy, consider this scenario. If you invested $5,000 in cryptocurrency and it increased by 10×, you would have $50,000. That’s a great return. But if it went to zero, would it be enough to ruin your retirement plans? Probably not.

While the $5,000 example works for some individuals or households, your investment portfolio, risk tolerance, and financial goals are unique. By understanding your investments and how every asset that you own works, you can decide on the ideal allocation for your retirement portfolio and other investments. Cryptocurrency may fit into your investment strategies. But if you plan on relying on alternative assets for retirement, invest carefully.

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