Should You Include Bitcoin In Your Retirement Plan? You May Need to Check!

Criticism of Lack of Diversification for Cryptocurrencies

As discussed previously, diversifying 401(k) retirement accounts solely with Bitcoin raises many questions about portfolio balance. This is because it's not the best way to handle a potential market downturn.

Possibility of Theft and Fraud

In charge of workplace retirement plans, the Department of Labor is also concerned about 401(k) plan investments in bitcoins. As a result, the Department of Labor has advised plan fiduciaries to take extreme caution before signing up for a cryptocurrency option on a 401(k) plan's investment menu. These investments pose significant fraud, theft, and loss risks for participants' retirement accounts.

Volatility Exhibited by Cryptocurrencies

Numerous individuals are aware that the price volatility of cryptocurrencies poses a substantial risk to retirement plans. As a result, several investors may find it difficult to distinguish between facts and hype. When fiduciaries add a cryptocurrency option to a 401(k) plan's menu, it indicates to participants that investment professionals have deemed it fit to be a good investment. However, this can lead to erroneous risk assessments and substantial financial losses if not properly evaluated.

Should You Include Bitcoin In Your Retirement Plan?

Fidelity Investments announced that bitcoin and other cryptocurrencies would soon be accepted in 401(k) accounts. As a result, the company is a pioneer in this field. Around the middle of the year, the option will be available to the 23,000 companies using Fidelity for their retirement accounts. Some investors may be skeptical of cryptocurrencies' suitability for retirement savings. However, many financial advisors believe it can be included in a well-balanced investment portfolio. In addition, clients are beginning to include it outside of employer-sponsored retirement plans in their investments.

Douglas Boneparth, president of Bone Fide Wealth in New York and a certified financial planner, believes most retail investors are simply looking for a way to participate in bitcoin's expected long-term appreciation. However, he also made it known that he would be happy and overjoyed if this was achieved.

Considerations to Make Before Including Bitcoin In Your Retirement Plan

Obviously, investors should not add bitcoin and other cryptocurrencies to their 401(k)s simply because they can. Rather, if you intend to put it in your retirement account, make sure it aligns with your long-term financial goals. Ivory Johnson, CFP and founder of Delancey Wealth Management in Washington, D.C., said,

"If you have a 10-year time horizon, I believe now is a good time to buy."

If this is not the case, investors should consider the asset class as a whole rather than trying to time the volatile market. The best advice for investors is not to buy cryptocurrencies because their prices are falling. Rather, they should have a compelling reason to do so. Some regard the asset as a place to store value. On the other hand, others regard it as desirable due to its expanding utility. Before investing in cryptocurrencies, investors should determine how much of their portfolio they would like to invest. Furthermore, they should ensure that the proportion corresponds to their risk profile. In addition, before making a purchase, novice investors should determine how much they can afford to lose.

Investors have a problem if they invest 20% of their wealth in cryptocurrencies and cannot deal with the volatility. A loss of 1%, 2%, or 3%, on the other hand, will have a smaller impact on the investor's portfolio. Fidelity has placed restrictions on investors' ability to invest their entire retirement fund in cryptocurrencies. The company implemented this by ensuring that account holders will not be able to invest more than 20% of their savings in bitcoin, with plan sponsors able to adjust this percentage.

Conclusion

Investors should expect cryptocurrency price volatility to continue. Bitcoin's value has been declining since it surpassed $69,000 in November 2021. Its value has decreased by 40% since then. The historically risky asset has never been tested in a rising interest rate environment. Tyrone Ross, CEO of Onramp Invest, a crypto-asset platform for financial advisors and businesses, has made it known that future [crypto] declines should be expected. He advised crypto enthusiasts to invest only funds they could afford to lose. This means that even if the balance is zero when you wake up the next day, you should be able to pay your rent.

Before investing in cryptocurrencies, crypto experts stressed the importance of having a stable financial situation and a well-defined investment strategy. If investors had access to bitcoin and other digital assets through their 401(k) account, they would be able to make these types of investments much more easily. A 401(k) is a common way for people to invest their money, and it is frequently their first or only investment experience. Therefore, having access to bitcoin through these accounts will certainly help educate and expose people to the asset class and make a better call on whether or not they should include Bitcoin in their retirement plan.