It is never too late to start planning for retirement. When doing so, most people shy away from risky (read: volatile) investments like Bitcoin, but that may be soon changing. For people planning their financial future, Bitcoin and other cryptocurrencies represent a hedge against the current financial system.
Setting Money Aside for the Future
Almost everyone has heard of the importance of actively saving money for retirement. Many people are maxing out their 401(k) contributions, socking money away in a traditional IRA, or investing in mutual funds.
Most retirement plans subscribe to the “contribute and coast” mentality. However, to keep everything running smoothly and to help ensure maximum earnings, planning your finances needs semi-regular reassessment as the global financial landscape changes. Cryptocurrencies may be one of the biggest financial changes we have seen in the past few decades.
Cryptocurrencies bring an entirely new asset class into the wider market. The absurd price swings that have made Bitcoin notorious can be very attractive for people willing to take investment risks. Some cryptocurrency IRAs have even been approved by the IRS. The big question is whether or not this new, risky investment belongs in retirement accounts. Here are three sound reasons why thousands of Americans believe they do.
Diversification
One of the first rules of investing is diversification. The old saying “don’t put all your eggs in one basket” still rings true. A common strategy is to diversify your holdings into a variety of mutual funds with manual rebalancing every so often.
Most tax-deferred retirement accounts only give two options for investing – stocks and bonds. To diversify properly, you should invest in many asset classes, including real estate, precious metals or commodities, and maybe even cryptocurrencies. If cryptocurrencies continue to gain adoption and rise in value, it could be a great option for those looking to spread out their savings.
Government Hedge
One of Bitcoin’s top selling points is the fact that it is decentralized. There is no government or third party that has direct control of the network. Government monetary and fiscal policy can have huge implications for bonds and the stock market. Central banking services have control over how the currency functions. Moves from governing bodies can debase fiat currencies, causing them to lose value relative to the rest of the market.
Cryptocurrencies, on the other hand, are not significantly affected by the ever-changing fiat landscape. Bitcoin and other digital currencies could be viewed as contrarian assets – like gold – that perform the opposite of more popular markets.
Huge Long-Term Growth Potential
Cryptocurrencies may be a great long-term hold, but for the time being, they are one of the most volatile asset classes out there. These investments can be great for your wallet, but bad for stress.
But for retirement planning, few people will be day trading with their savings. Planning for your future is all about the long term. During the Great Recession, the Dow Jones Industrial Average dropped to a low of 6,443, down from a previous high of 14,164. Looking back ten years later, the DOW has surpassed both high and low points. Bitcoin is significantly down year-to-date, but anyone that has been holding for over a year has seen some substantial returns.
Before you go dumping your savings into cryptocurrencies, you need to think long and hard about it. Do your due diligence and then decide if they are right for your future goals. Bitcoin – and cryptocurrencies in general – are still very high risk and depending on your risk tolerance, they might not be the best fit.
What do you think about adding Bitcoin to retirement plans? Could it be dangerous or does it make sound financial sense? Let us know in the comments below!
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