There will be a fresh avenue for investors to incorporate cryptocurrency into their retirement plans in the near future.
According to a company news release, Fidelity Investments intends to allow investors to include bitcoin in their 401(k)s. In the future, businesses utilizing Fidelity as their retirement plan provider will have the choice to grant their employees access to bitcoin, enabling individuals to invest in the digital currency through one of the nation’s major retirement-plan providers.
The White House has reported that about 40 million adult Americans, which is approximately 16% of the population, have engaged in the investment, trading, or usage of cryptocurrencies. In March, President Joe Biden took a significant step by signing an executive order to establish the first-ever federal strategy on cryptocurrencies. Additionally, popular trading apps like Robinhood and cryptocurrency exchanges such as Coinbase have made the process of buying and selling cryptocurrencies similar to trading stocks and bonds. Currently, Bitcoin’s price per coin fluctuates, having reached a peak of nearly $68,000 before settling around $39,000. Its market value is estimated to be around $750 billion, based on CoinMarketCap data.
According to a news release, Dave Gray, the head of workplace retirement offerings and platforms at Fidelity, stated that there is an increasing desire from plan sponsors to offer their employees access to digital assets in defined contribution plans. Likewise, there is a rising interest from individuals who wish to include cryptocurrencies in their long-term investment strategies.
According to The Wall Street Journal, the proposed plan permits retirement savers to invest up to 20% of their savings in cryptocurrency through Fidelity’s Digital Assets Account. However, employers can elect to reduce this limit. Gray expressed to the Journal that although the initial offering only includes bitcoin, he anticipates the inclusion of other digital assets eventually. Gray also informed the news outlet that account fees will range from 0.75% to 0.9%, excluding trading expenses.
Some older Americans turn to crypto to make up for retirement shortfalls
Data from a platform that enables retirement accounts to invest in cryptocurrency reveals that as baby boomers and Gen Xers approach retirement age, they are becoming aware of their insufficient savings and are considering cryptocurrency as a means to compensate for this shortfall.
Chris Kline, co-founder and chief operating officer of Bitcoin IRA, mentioned that older individuals seeking to catch up or expand their retirement planning are attracted to the enticing growth and return rates.
According to data shared exclusively with Yahoo Money, more than 50% of Bitcoin IRA’s user base consists of individuals aged 55 and above, while over 75% of its 100,000 users are above the age of 45. This challenges the common perception that digital currency is predominantly favored by younger generations.
Kline stated that these investors desire the “sizzle and excitement” that traditional investment methods such as 401(k)s, IRAs, and stocks cannot provide, due to crypto’s tendency to attract attention with its price fluctuations. Additionally, they prefer a more active role in their investment strategies, rather than the passive approach of choosing mutual funds or index funds from an employer’s retirement plan options.
“They have a desire for something slightly more unique,” he stated. “They seek to have a greater sense of control and engage in diverse activities.”
According to PwC’s Retirement in America report, numerous individuals are also seeking strategies to cover small deficiencies in their retirement funds. The report highlights that individuals aged 45 to 55 have a median retirement savings of $82,600, whereas those closest to retirement between 55 and 64 have $120,000 saved up.
Bernadette Geis, PwC’s U.S. asset and wealth management leader, emphasized that the amount they have saved will only provide them with approximately $1,000 in cash per month during retirement, which she deemed insufficient.
Crypto plays a significant role in this context, particularly in a year when the value of bitcoin surged by 120% between the beginning of the year and mid-April, with other digital currencies experiencing similar rapid growth.
PwC’s financial crime unit leader, Vikas Agarwal, warns against viewing cryptocurrency as a guaranteed source of easy income due to its rapid expansion. Every investment carries risks, and investing in crypto does not guarantee success. As evidenced by bitcoin’s 50% decrease in value since mid-April.
Financial professionals advise against putting all your money into one specific investment, especially one as unpredictable as cryptocurrency. Agarwal compared the excitement around cryptocurrency to a rapidly growing stock that is gaining popularity in the market.
According to Agarwal, determining allocation should primarily be based on the risk level of a portfolio, excluding cryptocurrency. For investors with portfolios containing numerous high-risk assets, it is advisable to invest a smaller amount in crypto. Conversely, individuals with portfolios characterized by lower-risk assets can potentially invest a higher percentage in crypto without compromising their financial stability.
To safeguard investors from excessive risk, Even ForUsAll Inc., a 401(k) provider that has recently permitted its retirement savers to invest in cryptocurrencies, limits the allocation to crypto to 5% of portfolio balances.
Agarwal advised individuals keen on crypto to focus on “coins that have gained recognition and are firmly established,” such as bitcoin or ethereum.
He mentioned that there are likely some investors who are less knowledgeable about the risks, bringing up concerns such as high transaction fees, gains taxed by federal income, and significant price volatility.
Agarwal said that it is a common mistake for regular investors to mix up stocks and cryptocurrencies. This is particularly true for passive investors who may not find the daily market and volume fluctuations of cryptocurrencies suitable for their investment approach.
He explained that trading and divesting cryptocurrencies could become difficult if the wild price swings occur outside of market hours, which is not typically the case for retirement accounts that are not commonly used for day-trading against cryptocurrencies.
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