Some investors may soon be able to add cryptocurrencies to their 401 (k) accounts.
Fidelity Investments announced Tuesday that it will begin allowing investors to put cryptocurrencies like bitcoin on 401 (k) retirement accounts, making it the first provider to do so. The offer will be available mid-year for the 23,000 companies using Fidelity for their retirement accounts. (Of course, your employer as a plan sponsor must accept that.)
Some investors may wonder if cryptocurrencies have a place in their retirement savings. Many financial advisors say it can be part of a well-balanced investment portfolio and have noticed that clients have already added it to their investments outside of employer-sponsored retirement savings.
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“I think most retail investors are looking for exposure to something that just allows them to participate in what they hope will be the appreciation of bitcoin in the long run,” said Douglas Boneparth, a certified financial planner and president of Bone Fide Wealth in New York. “And if this story achieves that, I’m glad to see what I think’s wonderful.”
What to consider before investing
Of course, investors should not rush to add bitcoin or other cryptocurrencies to their 401 (k) plans just because they can.
Instead, make sure that if you want to add it to your retirement account, it fits into your long-term financial goals.
“If your time horizon is 10 years, I think now is a good time to buy it,” said Ivory Johnson, a CFP and founder of Delancey Wealth Management in Washington, DC. Otherwise, he recommends that investors take a more holistic approach to asset class instead of trying to time a volatile market.
Investors should have a clear reason to buy crypto instead of only being drawn in because the price fell, he said. Reasons include seeing the asset as an asset, seeing it as uncorrelated or wanting to own it due to the increasing adoption rate.
Before jumping in, people should be aware of how much of their total portfolio is invested in cryptocurrencies and make sure the allocation matches their risk profile, Johnson said. New investors should have a firm grip on how much they are willing to risk before buying.
“If you put 20% in crypto and you can not resist instability, you have what is known as a problem,” he said. “But if you’ve gone 1% or 2% or 3%, it’s not that big of a hit for your portfolio.”
Fidelity has some safeguards in place to prevent investors from putting all of their pension assets in cryptocurrencies. The plans will allow account holders to invest up to 20% of their savings in bitcoin, an amount that plan sponsors can reduce.
What can you expect while investing
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Investors should expect cryptocurrencies to remain volatile. Bitcoin has gone down and has lost 40% of its value since it reached record highs near $ 69,000 in November.
What’s more, the historically risky asset has not been tested in an environment like the one we see today, where interest rates are set to rise, according to Johnson.
“You have to fully expect that [crypto] will go down further, so just put what you can afford to lose, “said Tyrone Ross, CEO of Onramp Invest, a cryptocurrency platform for financial advisors and companies.” If we wake up tomorrow and it goes to zero , you will still need to be able to pay your rent. “
Before putting money into crypto, both experts stressed the importance of having a secure personal financial situation and clear investment plan. “If you on average cost dollars on the way down and also on the way up, it will even out that volatility and also improve the return,” Ross said.