A retirement investment portfolio should include a diversified mix of assets to reduce risk. But should cryptocurrencies be one of them? Before buy Bitcoins or any cryptocurrency as a retirement investment, there are a few things to consider.
Not all retirement accounts allow you to invest in cryptocurrencies
The first major hurdle you will likely encounter is that you may not be able to add cryptocurrencies to your retirement investment portfolio. If you're using a 401 (k) workplace, chances are you're limited to investing in pre-selected funds, and cryptocurrencies won't be among the assets you can invest in.
If you are using a self-directed 401 (k), you can choose to invest in cryptocurrencies if you want. You can also choose to open a traditional or Roth IRA with a brokerage firm that allows you to invest in cryptocurrencies. And some specialized cryptocurrency platforms allow users to open an IRA as well.
But neither the Roth nor the traditional IRA provide an employer match, as most 401 (k) do. And there are income limits for those who can take advantage of these accounts that don't apply to 401 (k).
So, if you are considering making cryptocurrencies part of your retirement portfolio, you will need to address these logistical issues first to see if it is possible to do so.
Cryptocurrencies are a volatile and risky investment
While you can invest in cryptocurrencies for retirement, that doesn't necessarily mean you should. Cryptocurrencies are known for their volatility, with even some of the more established currencies seeing wild swings in performance. Many also don't have much use in the real world as currencies, and their value is highly speculative.
When you're investing for retirement, there's a good chance this is money you can't really afford to lose. You cannot live on Social Security alone because it is not enough to cover the needs, so you will need additional income from your nest egg.
Many people struggle to build savings that replace enough of their income to maintain their standard of living in retirement. Putting some of the money you hope to use for your next few years into a high-risk investment could make achieving your savings goals even more difficult.
On the other hand, some cryptocurrencies may have great upside potential, and there is the potential to earn much higher returns on these assets than with some of the more traditional retirement investments. But the price of the potential for higher returns is that you also risk taking large losses that could leave you with too little in the end.
To help you decide whether you should include cryptocurrencies in your retirement portfolio, consider what would happen if the value of your digital coins went to zero dollars, which is not out of the realm of possibility. If you don't have enough money left as a retiree, then you can't afford to take that risk and you need safer investments.
But if you are already investing in a lot of low-risk assets, you are well on your way to meeting your retirement goals, and you have some extra cash that you can invest in cryptocurrencies without jeopardizing your retirement, then you may decide that. worth it for the potential returns cryptocurrencies could provide.