If you dream of combining your cryptocurrency investments with your retirement savings, you are not alone.
Nearly 50% of Gen Z and Millennial employees want to be able to invest in cryptocurrency through their 401(k) retirement plan, according to Charles Schwab”2022 401(k) Plan Member Studywhich surveyed 1,000 401(k) plan participants between the ages of 21 and 70 who work for companies with at least 25 employees and currently contribute to their company’s 401(k) plan.
“They are challenging traditional approaches to work and retirement,” said Catherine Golladay, Schwab’s workplace financial services manager, said in a press release. “The 401(k), while still their primary retirement savings tool, is no longer seen as their only path to retirement.”
For some investors, it is already possible to invest in cryptocurrency through a 401(k).
Fidelity Investments, which manages the employee retirement programs of nearly 23,000 companies, has given companies the option to offer employees the opportunity to invest in bitcoin through “digital asset accounts.” If an employer offers this option, employees can invest up to 20% of their 401(k) in bitcoins.
However, just because the option is available doesn’t mean it’s the perfect fit for your retirement strategy.
“There is no underlying fundamental value to cryptocurrency,” says Greg McBride, chief financial analyst at Bankrate. “It’s not tried and tested as a sustainable wealth builder.”
Adding cryptocurrency to your retirement portfolio can reduce its overall performance, adds McBride.
This is because, typically, you diversify your portfolio by spreading your investment dollars across several financial assets, such as stocks and bonds. This helps reduce volatility in your portfolio since you are not over-invested in a specific type of asset.
But cryptocurrency is a very volatile asset, prone to erratic fluctuations and declines in value, which means it could increase your portfolio’s volatility rather than reduce it.
Given the unpredictable nature of the crypto market, the US Department of Labor has warned companies that operate 401(k) plans to “exercise extreme caution before including direct cryptocurrency investment options.”
In addition to crypto, younger generations want to invest in a wide range of options through their 401(k), including annuities, which provide guaranteed income in retirement, according to the Schwab survey. However, it is important to note that annuities can have a number of disadvantages for investors, such as expensive fees and restricted access to your money.
“They recognize the value of speculative assets, but also recognize the value of guaranteed income as you approach retirement,” says Nathan Voris, director of investments, insights and advisory services at Schwab.