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What to consider before adding bitcoin to your retirement savings

2022-05-05T14:16:02.898Z


This option will be available in companies like Fidelity, but experts recommend checking with your employer and seeing what it means to invest with cryptocurrencies in the long term.


By Carmen Reinicke -

CNBC + Acorns

Fidelity Investments announced Tuesday that it will soon begin allowing investors to include cryptocurrencies such as bitcoin in their 401(k) retirement accounts, becoming the first provider to do so.

The offer will be available mid-year to the 23,000 companies that use Fidelity for their retirement accounts.

Of course, your employer, as the plan sponsor, has to agree to this.

Some citizens may wonder if cryptocurrencies have a place in their savings.

Many financial advisors say they can be part of a well-balanced portfolio, and have seen clients already add them to their investments outside of employer-sponsored retirement savings.

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"I think most retail investors are looking to get exposure to something that just gives them a chance to participate in what they hope will be the long-term appreciation of bitcoin," said Douglas Boneparth, certified financial planner and president of Bone Fide Wealth in New York.

"And if this account does that, I want to see it, I think that's wonderful," he added.

Educate yourself before making any decision about whether or not to invest in cryptocurrencies.Getty Images

What to consider before investing  

Investors shouldn't rush into adding bitcoin or other crypto assets to their 401(k) plans just because they can.

Instead, make sure if you're adding it to your retirement account that it fits with 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 certified financial advisor and founder of Delancey Wealth Management in Washington, DC Otherwise, she recommends taking a more holistic approach. to the asset class rather than trying to time a volatile market.

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Contributors should have a clear reason to buy crypto rather than get carried away just because the price has dropped, he said.

Reasons include viewing the asset as a store of value, regarding it as uncorrelated, or wanting to own it due to the increasing rate of adoption.

Before taking the plunge, people should be aware of how much of their total portfolio is invested in cryptocurrencies and make sure the allocation fits their risk profile, Johnson said.

New investors should have a firm idea of ​​how much they are willing to risk before they buy.

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“If you put 20% into crypto and you can't handle the volatility, you have what's known as a problem,” he said, “but if you've gone 1% or 2% or 3%, it's not as much of a hit. great for your wallet.”

Fidelity has some barriers to prevent investors from putting all of their retirement assets into 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 to expect while investing

Investors should expect cryptocurrencies to remain volatile.

Bitcoin has trended lower, losing 40% of its value since hitting an all-time high near $69,000 in November.

In addition, this historically risky asset has not been tested in an environment like the current one, in which interest rates are going to rise, according to Johnson.

“You should fully expect [crypto] to go further down, so only put in what you can afford to lose,” said Tyrone Ross, chief executive officer of Onramp Invest, a crypto asset platform for financial firms and advisers.

“If we wake up tomorrow and it goes to zero, you should be able to continue paying rent,” he added.

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Before putting money into cryptocurrencies, both experts stressed the importance of having a secure personal financial situation and a clear investment plan.

“Averaging the cost of the dollar going down and also going up will smooth out that volatility and also improve returns,” Ross said.

Having access to bitcoin and other digital assets in a 401(k) will likely make these types of investment moves easier for investors, Boneparth said.

“A 401(k) is how a lot of people invest their money and it's their first exposure or only insight when it comes to saving,” he said.

Having access to bitcoin in these types of accounts “will certainly help indoctrinate people and expose them to this asset class,” she added.

This article is part of the 

Invest in You: Ready series.

Set.

Grow

 (Invest in you: Ready. Ready. Grow), an initiative of CNBC and Acorns, the micro-investing app.

NBC Universal and Comcast Ventures are investors in 

Acorns

.

Source: telemundo

All news articles on 2022-05-05

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