Cryptocurrencies and digital assets have quickly become part of our new normal. As a majority of Americans are soon to step into retirement, many are rethinking their investment strategies, looking to rather invest in crypto as a way to catch up for lost time.
Although crypto has remained a lucrative investment for some, it remains a highly volatile and risky investment. Betting your retirement savings on a digital currency can result in major losses, while at the same time, experts claim that diversifying your retirement portfolio helps improve financial security for your future.
While the world has gone into a craze around Bitcoin and other popular digital coins, millions of soon-to-retire Americans are looking to see whether the highly volatile market of crypto can perhaps give them the financial boost they might need.
But it’s no wonder that according to the latest insight that around 1 in 10 of American internet users currently own some sort of digital currency.
Yes, one can argue that crypto has made a lot of people extremely wealthy, but in return, you should also consider at what risk? You may have heard how millions of people increased their wealth almost overnight as the prices of various digital coins shot through the roof. Just as quickly as they increased their wealth, they also managed to lose it.
The bottom line here is, crypto remains a gamble, and you need to be smart about your investment.
Considerations to Keep in Mind
Crypto for Retirement Is Growing in Popularity
In a recent survey published by Capitalize, 20% of the surveyed 1,004 American employees that are soon to retire are currently investing in a form of digital assets. On the other hand, a more sizable 63% of Generation X and Baby Boomers feel that investing in digital assets such as crypto, among others could result in major losses.
While these two groups are the majority of the American workforce soon to retire, the picture looks somewhat different for younger workers.
The same survey indicates that around 56% of Gen Z workers are already including some form of crypto in their retirement strategy, while 54% of Millennials are doing the same.
It’s estimated that to comfortably retire, Americans will need on average more than $1.8 million in retirement savings. But while some feel this might not be enough to help carry them through their golden years; sentiment around digital coins and crypto is a bit more bearish for older workers.
The Crypto World Is Still Too Unknown for Some
Although crypto has played a massive role in our society in a short amount of time, a portion of the American population is still unaware of what crypto is, how it works, and how to invest in it.
Older investors, between the ages of 55 and 64-years old make up 11% of current crypto investors according to a survey by CNBC Select and Dynata. On the other hand, individuals aged between 18 and 34 make up almost half of current crypto buyers, taking up 45% of the market, while 35 to 44-year-olds come in second with 37%.
Crypto might be a big deal for those who are still open to running the risk, but for older generations, crypto remains just a fad or even an unknown market they’re not willing to enter.
Security Risks
What has attracted so many investors and buyers is the mere understanding that cryptocurrencies are decentralized and deregulated. This is great news for investors who want to enjoy a high level of anonymity and security.
On the other hand, crypto community security remains a contributing factor to ensuring the safeguarding and keeping of individuals’ digital assets.
There have been too many instances in recent years where crypto security has failed to protect users’ assets. From digital wallets being hacked to companies going bankrupt and losing millions of Bitcoins, and even software infections that led to a major data breach.
After you’ve purchased your crypto, you still run the risk of losing it, not to a volatile market, but unforeseen circumstances related to security issues.
And while you may have spent a large portion of your retirement savings to invest in crypto, you can almost instantaneously lose your assets without you even knowing.
Bitcoin IRA
Individual Retirement Accounts or IRAs is an encouraging retirement savings plan for those looking to save up for their post-work endeavors. Some banks and other major financial institutions now offer soon-to-be-retired workers an option to invest in cryptocurrency through an IRA.
The introduction of Bitcoin IRA makes it easier, and somewhat more secure for small-time investors to get a piece of the crypto pie. According to findings, since March 2020, more than $400 million in retirement investments has already been processed.
401(k) vs Bitcoin IRA
Experts suggest that employees match the amount contributed by their employers for their 401(k) plan. This means that employees should first match what their employers are contributing before making any other purchases or investments in retirement plans or schemes such as Bitcoin IRA.
If an employee has the opportunity to add to their 401(k) or 403(b) plan before investing in Bitcoin IRA, contributions and overall retirement portfolio should remain diversified, leaning more towards lower-risk funds and retirement schemes.
But although a 401(k) is an attractive employee benefit, many still share that Social Security alone won’t be enough to sustain them in the near future. While this may be true, investors are rather encouraged to include cryptocurrency and other digital assets in their long–term investment plan.
Alternative Options
While it may seem as if cryptocurrency can offer you a high return on investments, some alternative options could help build your retirement fund.
Consider Long Term
Most crypto investors are tech-savvy, young traders who are willing to run the risk when investing in such a highly volatile market. Investing in crypto can cost you a lot of money, so before you spend a large portion of your retirement savings, consider first diversifying it into other securities.
With this in mind, remember that at the current age, while you might be trying to make up for a lost time, cryptos are still a long-term investment. Think of it as a house, when you first bought it, it cost you a huge amount of money, but over time as you repay the mortgage, you realize the true value it holds. Crypto sort of works the same.
Less Risky Investments
Whatever your age, there are less risky investments that can help you diversify your portfolio. You can look at a mutual fund that could perhaps help you increase your yearly interest as your investment grows.
Stocks and government bonds are still a stronghold in the current economic environment and can be of great benefit. Smart investors can decide on whether they’d like to go about this by themselves, which might require some additional knowledge or skills. Or simply make use of a broker that might charge a commission fee, but at least your investments will be secure.
Roth IRA
This is one of the more traditional retirement plans used by millions of Americans. For those who might find themselves in a situation where your employer or company does not offer any retirement benefits, you can open a tax-advantaged Roth IRA plan.
IRA options are endless, and you can find them at various banks, financial firms, or investment brokers. It gives you a bit more control over your retirement investments, and you can reap the tax advantages that automatically come with it.
Bottom Line
Whether you’re trying to make up for lost time, join in on the crypto craze, or perhaps genuinely want to dabble in the market – digital assets are high risk, and extremely volatile investments when adding it to your retirement portfolio.
It’s still advised to diversify your portfolio among various securities, but consider choosing those which you can have control over, and understand how it works.
There’s still a lot we need to learn and understand about how crypto works, and in an economic environment where novice traders are flooding the market, and pinching the price of crypto, perhaps this is something that should remain a marginal percentage of your retirement portfolio, for now at least.
By Pierre Raymond for Due.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.