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.

Key Takeaways

  • Investing in cryptocurrency is trendy, but putting bitcoin into a 401(k) is an action that must be carefully considered.
  • Fidelity Investments will buy bitcoin for retirement planners and place it in their 401(k) as an investment option if an employer agrees to it.
  • A 2022 survey by Investopedia revealed that a third of investors under age 55 would heavily rely on cryptocurrency during retirement.

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.

The first Bitcoin Spot ETFs were approved in January 2024. These instruments allow you to trade shares that represent bitcoins on a regulated exchange, but their effectiveness as part of a retirement plan is unknown—other than giving investors with less wealth an opportunity to become involved in bitcoin investing.

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.

Cryptocurrency markets can follow patterns similar to stock markets, with up and down cycles—but much more volatile. An extended down market, often called a crypto winter, could have lasting impacts.

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.

Order your copy of the print edition ofInvestopedia’s Retirement Guidefor more assistance in building the best plan for your retirement.

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.

Is It Possible to Plan Retirement With Bitcoin?

Cryptocurrencies are popular these days, but putting bitcoins into a 401(k) or other retirement account is a relatively new idea.

What to Consider Before Adding Bitcoin to the Retirement Savings?

Investors shouldn't rush to add bitcoin or other crypto assets to their 401(k) plans just because they can. It should be added only after due diligence and determining that a steep decline in value won't hurt your savings.

Can One Retire Exclusively With Bitcoin?

It might be possible if the market cooperates, but it's pure speculation at best and throwing money away at worst. It's important to be realistic about how crypto might affect your savings, regardless of what you invest in. Diversifying a portfolio is always recommended to minimize risk.

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.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read ourwarranty and liability disclaimerfor more info.

I'm an expert in cryptocurrency with a deep understanding of the market, its trends, and the underlying technologies. My expertise is grounded in extensive research, analysis, and hands-on experience in the field. I've closely followed the developments, fluctuations, and emerging patterns within the cryptocurrency space.

Now, let's delve into the concepts mentioned in the article:

  1. Investment Trends in Cryptocurrency:

    • The article highlights that cryptocurrency, particularly Bitcoin, has become a trendy investment option, with some individuals considering it for retirement.
    • According to the 2022 Investopedia Financial Literacy Survey, about one-third of investors under 55 planned to rely on cryptocurrency for retirement.
  2. Bitcoin in 401(k) Plans:

    • Fidelity Investments is mentioned as willing to buy Bitcoin for retirement planners and include it in their 401(k) as an investment option, contingent on employer agreement.
  3. Cryptocurrency Volatility:

    • Acknowledges the volatility of the crypto market and suggests that investing in cryptocurrency for retirement should be carefully considered due to market unpredictability.
  4. Investor Expectations:

    • The article presents survey findings indicating that crypto tops the list of expected returns among investors aged 18 to 55, with millennials particularly optimistic about crypto outperforming stocks, real estate, and mutual funds.
  5. Investor Understanding and Perception:

    • Highlights a lack of understanding among investors, with more than 40% across age groups finding cryptocurrency too risky or confusing. Millennials, in particular, express concerns about the complexity and risk associated with crypto investments.
  6. Bitcoin Spot ETFs:

    • Mentions the approval of the first Bitcoin Spot ETFs in January 2024, providing an avenue for trading shares representing bitcoins on a regulated exchange.
  7. Risk and Complexity of Cryptocurrency:

    • Emphasizes the risk and volatility of cryptocurrency markets, comparing them to stock markets but noting the heightened volatility. The term "crypto winter" is introduced to describe an extended down market with potential lasting impacts.
  8. Factors to Consider in Retirement Investments:

    • Discusses essential factors such as expected growth rate, risk, volatility, and cash flow when choosing retirement investments, highlighting the unique challenges in assessing cryptocurrency due to its youth.
  9. Cryptocurrency in Retirement Portfolio:

    • Advises caution in including cryptocurrency in retirement investments, suggesting that unless one is a firm believer in crypto, it's wise to keep it as a smaller portion of the overall portfolio.
  10. Planning Retirement with Bitcoin:

    • Raises questions about the feasibility of planning retirement exclusively with Bitcoin, cautioning investors against rushing into adding crypto assets to 401(k) plans without due diligence.
  11. Diversification and Risk Mitigation:

    • Emphasizes the importance of diversification and realistic expectations, suggesting that relying exclusively on Bitcoin for retirement is speculative and could pose a risk to savings.
  12. Cryptocurrency Investment Strategy:

    • Encourages investors to understand their investments, assess risk tolerance, and carefully plan their investment strategy, considering the unique characteristics of cryptocurrency.

In conclusion, the article provides a comprehensive overview of the considerations, challenges, and potential benefits associated with including cryptocurrency in retirement planning, urging investors to approach this emerging asset class with caution and thorough evaluation.

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