Getting ready for retirement can be challenging, yet making the right investments can significantly boost your savings. Among the top investments in 2021 was cryptocurrency, which experienced a surge in popularity. While several cryptocurrencies have witnessed a decline in their prices this year, the current period may offer a more budget-friendly opportunity to purchase them. Investing now could result in substantial profits if prices eventually recover.
How secure is crypto as a retirement investment? While a few investors have rapidly earned millions, is it feasible to solely rely on crypto for retirement? Here is the essential information.
Crypto’s biggest risk
Purchasing cryptocurrency comes with a significant risk, primarily due to its nature as a speculative investment. The longevity of cryptocurrencies remains uncertain, making it impossible to predict their existence in the coming decades. Additionally, even the most promising cryptocurrencies do not provide a guaranteed path to success.
Investing in crypto is generally riskier, particularly for retirement as it poses a high-risk option. If your entire savings are solely invested in crypto and it eventually collapses, there is a possibility of losing everything.
If you have limited time left before retirement, it could be challenging or even impossible to recover your savings if a significant amount of money is lost. Placing all your savings in a single investment is highly risky, and this risk is magnified when it comes to speculative investments such as cryptocurrency.
How to safely invest in cryptocurrency
It may not be possible to solely rely on cryptocurrency for retirement, but there are secure methods to incorporate this form of investment into your retirement portfolio.
- Double-check your diversification: A properly diversified portfolio should include at least 25 different stocks from a variety of industries. This will limit your risk because if one or two of your stocks falter, it won’t wreck your entire portfolio. When buying crypto, a well-diversified portfolio can help cushion the blow if your investment doesn’t pan out.
- Only invest money you’re comfortable losing: Crypto is still speculative right now, so there’s always a chance you could lose any money you invest. While that doesn’t necessarily mean you will lose money with this investment, it’s often wise to err on the side of caution when it comes to your retirement savings.
- Do your research before you buy: The crypto world is still the Wild West in some ways. There’s very little regulation in the industry, and scams are common. Some cryptocurrencies may seem like a tempting way to make a lot of money overnight, but if it seems too good to be true, it probably is.
Investing wisely is crucial when including crypto in a diversified portfolio. Instead of solely aiming for quick profits, prioritize discovering robust cryptocurrencies that have practical applications in the real world and offer prospects for sustainable growth in the long run.
Should you add bitcoin to your 401(k)?
Some financial advisors have refrained from recommending cryptocurrency to their clients as cryptocurrencies such as bitcoin and ether carry risks, being highly volatile. For instance, bitcoin experienced a surge to $20,000 in 2017, followed by a drop to under $5,000 in 2018, and then a skyrocket to over $60,000 per coin in 2021. Additionally, the future of these digital assets is uncertain due to the absence of regulation in the digital assets industry.
In March, the U.S. Department of Labor issued a warning to employers, advising them to be cautious before incorporating a cryptocurrency option into the investment menu of a 401(k) plan for participants. The government acknowledges these risks and highlights that under the law, employers offering 401(k) retirement plans are obligated to manage the plans in the employees’ best interests as part of their fiduciary duty.
Ali Khawar, acting assistant secretary of the Employee Benefits Security Administration, emphasized the Labor Department’s announcement by stating that plan fiduciaries have a vital responsibility in choosing investment options for 401(k) plan menus. However, considering the current state of cryptocurrency’s advancement, fiduciaries must approach the inclusion of direct investment options in cryptocurrency with utmost caution.
However, proponents of cryptocurrency argue that bitcoin can be used as a safeguard against inflation and assert that cryptocurrency is a potent economic factor that will endure. If you opt to invest in crypto for your future, it is important to consider that numerous financial advisors typically suggest allocating a maximum of 5% of your investment portfolio to high-risk assets, depending on your financial circumstances, objectives, and tolerance for risk.
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