Possessing a substantial sum of money readily available can often tempt you into venturing into a perilous territory. The issue arises when, eventually, you come across a significant amount accumulated in your retirement savings account. At that point, you will have to resist the strong desire to engage in gambling activities.
Occasionally, you may remain unaware of your gambling until the casino deprives you of your final chip.
One doesn’t need to possess the expertise of Captain Renault to understand that cryptocurrencies lack the necessary track record to guarantee that they are not akin to gambling.
Stuart Robertson, CEO of ShareBuilder 401k in Seattle, explains that cryptocurrency is a form of digital currency that operates independently from traditional banking systems and is intended to be exempt from government regulation. In other words, it is a decentralized digital currency. This type of currency can be utilized to buy goods and services wherever it is accepted, with the added advantage of enabling anonymous transactions. Since it is not associated with a bank, it is not covered by FDIC insurance. While Bitcoin is the most well-known cryptocurrency, there are various other providers in the market. Additionally, certain countries prohibit the legal usage of cryptocurrency.
Recently, there has been an increasing effort to permit retirement plans to invest in these recently created assets. Not only the individuals benefiting financially from the transactions involving assets like Bitcoin, but also inexperienced investors are advocating for this push.
Adam Bergman, CEO and Founder of IRA Financial in Miami Beach, states that the retirement system is the main means for most Americans to accumulate wealth, with over $32 trillion in retirement funds and around $12 trillion of IRAs. Thus, the majority of Americans utilize their retirement accounts as their main savings tool. As the cryptocurrency market expands, an increasing number of Americans are utilizing their retirement accounts to invest in cryptocurrencies.
Although there is limited historical data as Bitcoin, the initial cryptocurrency, only emerged in 2009, the available information indicates that it bears a closer resemblance to high-risk gambling rather than a strategy for long-term investment.
Bergman advises that cryptocurrency investments, including Bitcoins, carry uncertainty and significant volatility. Any retirement account investor considering using retirement funds to invest in cryptocurrencies should thoroughly research and approach with caution. For instance, the price of Bitcoin can experience fluctuations of around 5% or more within a single day, which surpasses the volatility observed in mutual funds or most equities.
Jahon Jamali, Co-Founder and Chief Marketing Officer at Sarson Funds in Sherman Oaks, California, points out that cryptocurrencies entail risks beyond their performance history. Due to being a relatively new asset class (only 11 years old), comprehensive investor protection laws for cryptocurrencies are still lacking. As a result, the category remains vulnerable to instances of fraud and/or misconduct.
The investment industry is actively seeking methods to lessen these risks by incorporating the unregulated investment into regulated products, although the extent of protection provided is uncertain, it signifies a beginning. This development also enhances the compatibility of cryptocurrency with widely accepted retirement plan platforms and frameworks.
There are individuals who do not concur with this Machiavellian approach towards saving and investing for retirement, as they argue that the disadvantages outweigh the benefits.
According to Shelly-Ann N. Eweka, Senior Director of Financial Planning Strategy at TIAA in Charlotte, North Carolina, including cryptocurrency in asset allocation meant for future goals like saving for a child’s education, buying a house, or funding retirement should be avoided. Eweka argues that contrary to the belief that the absence of governing authority is a positive aspect of cryptocurrency, it should actually be considered a negative aspect.
Before agreeing to include cryptocurrencies in their retirement plan investment options, plan sponsors need to carefully consider these types of risks. Moreover, if they decide to allow these investments, they must be ready to take additional measures to ensure that employees make informed investment decisions.
Fidelity, ForUsAll now offering 401(k) investors access to cryptocurrency
- Fidelity Investments, the largest 401(k) administrator by assets, began offering a bitcoin fund to workers this fall. ForUsAll started offering six cryptocurrencies to workers in recent weeks.
- The companies appear to be the first administrators of 401(k) and similar workplace plans to offer crypto.
- The U.S. Department of Labor has cautioned employers against offering the asset class due to risks like speculation and volatility.
Some 401(k) plans are now allowing retirement savers to invest in cryptocurrencies such as bitcoin.
A spokesperson has confirmed that Fidelity Investments, which is the leading provider of 401(k) plans in terms of total assets, has introduced a Digital Assets Account for clients this autumn.
Employers who have a 401(k) plan with Fidelity can decide to provide their employees with the option to allocate a portion of their savings to bitcoin.
David Ramirez, CEO of ForUsAll, announced that the plan administrator, which caters to startups and small businesses, introduced cryptocurrency options for 401(k) savers in September.
Ramirez, who refrained from revealing the specific cryptocurrencies, stated that ForUsAll plans to include an additional five options in the near future, allowing investors to purchase a total of eleven cryptocurrencies including bitcoin, ethereum, solana, polkadot, cardano, and USDC.
The firms appear to be the first administrators to make crypto available as 401(k) investment options.
In March, the U.S. Department of Labor advised employers to be extremely cautious when exposing workers to cryptocurrency, citing potential risks for investors like speculation and volatility.
In the meantime, there was a surge in investor enthusiasm towards crypto as it experienced remarkable growth in 2021. However, prices have now sharply declined, leading to what some refer to as a “crypto winter.”
The actions are being taken in response to the U.S. Department of Labor’s plea in March for employers to be cautious before exposing workers to cryptocurrency, emphasizing the existence of considerable risks for investors like speculation and volatility.
In the midst of record growth in 2021, there was a significant increase in investor fascination with crypto. However, prices have subsequently plummeted, leading to what is now referred to as a “crypto winter.”
Fidelity and ForUsAll have implemented measures to restrict the total percentage of investors’ 401(k) allocations to cryptocurrency. For instance, ForUsAll imposes a maximum allocation of 5% of the investor’s current portfolio balance and issues warnings if this portion exceeds 5% in the future. Meanwhile, investors are not permitted to allocate more than 20% of their balance to Fidelity’s offering, although employers have the option to reduce this threshold.
According to experts, employers might hesitate to offer cryptocurrency or alternative asset classes to their workers because of potential legal risks. Over the past decade, multiple lawsuits have been filed against companies by workers and other parties, claiming that 401(k) funds were both risky and costly.
The unresolved case involves ForUsAll suing the Labor Department due to the cryptocurrency compliance bulletin issued in March.
Leave a Reply