Cryptocurrency has a reputation of being one of the world’s most volatile assets, but they are still seeking acceptance into the mainstream investing world. Their next target? Your retirement portfolio.
Financial service companies such as BitIQ app are now starting to release products and services that can allow more ordinary investors to incorporate Bitcoin and other digital currencies into their nest eggs which can enable them to attain higher returns.
Even a U.S. senator, Cynthia Lummis, is now encouraging people to buy Bitcoin as a way to save for retirement.
A survey conducted about investing trends found that 14% of financial advisors are currently using or recommending cryptocurrencies to their clients. Back in 2020 the statistics were down to less than 1%. Meanwhile, 26% of financial advisors said they plan to start recommending cryptocurrencies in the next year. The survey also notes that 49% of respondents said they had been asked about cryptocurrencies by their clients in the last six months.
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Retirement plans represent a huge target, and financial advisors are taking notice of the interest. The Wall Street Journal states that investors currently have $22.5 trillion tied up in IRAs and 401(k) retirement plans.
Much recently, Bitcoin IRAs or crypto IRAs are sprouting up everywhere, but investors should still be wary. They need to make sure they first weigh out the rather substantial fees of investing in a Bitcoin IRA against the tax advantages it can bring. A lot of them reportedly have a myriad of fees for maintenance and transactions, and they would often come with heft account minimums.
Another important thing to take into account is the qualifications of the crypto IRAs. If you’re looking to start a crypto IRA, then first be sure that you are talking to a qualified custodian. Some IRA custodians are not qualified and have not been licensed by federal or state regulators. Only qualified and licensed custodians are mandated to follow and adhere to regulatory standards and are also subject to regular audit and inspections by regulators.
But because crypto is inherently volatile, not everyone is looking to add digital currency to their retirement plans. To paint the picture of just how volatile it can be, just this June Bitcoin reached a low of $36,000 compared to its high of $65,000 in April.
Prices for cryptocurrencies rely heavily on supply and demand. Cryptocurrencies are designed to guarantee scarcity, so the rate at which they can be exchanged for other cryptocurrencies can vary wildly.
For some people, the best option might be to not invest their retirement savings in Bitcoin at all. You can instead invest some of your excess cash in Bitcoin through a trusted cryptocurrency exchange. It won’t experience the same tax breaks as holding those assets in a retirement account, but it will provide an opportunity to get some leverage in the game without sabotaging your retirement savings.
In the event that Bitcoin prices do end up skyrocketing, you could always sell your tokens and use that money to retire instead. And in some instances, it could actually be the better choice when you’re far from retirement age because you usually pay the penalty for withdrawals made from retirement accounts if you’re not anywhere near 60 years old.
On the other hand, if you see Bitcoin as too risky, you could invest in some safer securities for your investment portfolio. Cryptocurrency stocks are one option to consider. There are lots of established companies that are positioned to profit in the instance crypto becomes accepted as a more mainstream asset but could equally make you a large sum of money even if Bitcoin never goes anywhere. Finally, there’s always the option of investing in a traditional and old-fashioned S&P 500 index fund.
Your retirement savings will be your financial lifeline when you reach your senior years, so gambling with it isn’t the best decision. Think carefully before making the decision of investing your retirement savings in Bitcoin. If you do decide to take the plunge, make sure you diversify your portfolio into plenty of other investments as well so that the cryptocurrency’s ups and downs don’t weigh too heavily in the future.