Over the past year, the price of Bitcoin (quotation BTC) has risen by more than 300%. Despite having plummeted over the past couple of months, its price is rising once again, making it an attractive option for those looking to jumpstart their retirement savings.
Because Bitcoin has experienced such explosive growth, it can be tempting to put your life savings behind cryptocurrency to retire well off. But is it the right move?
Is Bitcoin a Smart Retirement Investment?
For most people, personal savings will make up the bulk of retirement income. Social Security benefits are designed to only replace around 40% of your income, and unless you have access to a pension or some other guaranteed source of income, the rest will have to come from your savings.
Since you will likely depend on your savings to make ends meet in retirement, it is important that your investments are relatively stable. If your stock suddenly plummets in value, it means less money in your retirement fund, which can be detrimental to your financial future.
For this reason, withdrawing on Bitcoin alone can be incredibly risky. Bitcoin is famous for its volatility and has even lost more than 80% of its value in the past. While everyone has a different risk tolerance, few retirees would be able to sleep at night knowing their savings could potentially plummet by 80% or more in a short period of time.
Furthermore, no one knows for sure if Bitcoin will still be around in a few years or a few decades. While there is a possibility that it will someday become a traditional form of currency, this is not guaranteed. If you invest all your savings in cryptocurrency and it doesn't go, your retirement could be at risk.
Invest in Bitcoin while keeping your retirement safe
If you're eager to jump on the cryptocurrency bandwagon, there's nothing wrong with that. But there are safer ways to invest in Bitcoin without risking your financial future.
First, make sure you only invest a relatively small amount of money that you could afford to lose. The exact amount you invest will depend on your financial situation and risk tolerance, but it shouldn't be so much that you'll struggle to pay your bills if you lose your entire investment.
Then, double check that the rest of your portfolio is adequately diversified. By spreading your money across a wide variety of stocks across multiple sectors, your overall investment portfolio won't be as impacted if Bitcoin doesn't perform well.
Finally, only invest in Bitcoin if you believe it has long-term potential. Investing is not a get-rich-quick scheme and it is nearly impossible to make millions overnight. But if you believe that Bitcoin has value and are willing to hold your investments for years or decades despite the potential volatility, you could make a lot of money over time.
Bitcoin is risky and betting your retirement on it can be dangerous. But that doesn't mean you can't invest at all. By being strategic about how and where to invest, you can keep your retirement safe while maximizing your savings.
