��Ѩ��Ƶ

As cryptocurrencies continue to grow in popularity, many investors are wondering if they should include digital assets in their retirement portfolios. One of our founders, Ric Edelman, has been a pioneer in this field, and understood early on the technology behind crypto and its applications, and more importantly, how this new asset class should be viewed in relation to a personalized financial plan.

Crypto’s potential for high returns and its appeal as a cutting-edge investment opportunity have made it a compelling option for some. But does cryptocurrency truly belong in your retirement strategy? The answer depends on your financial goals, risk tolerance and long-term planning.

��

Understanding Cryptocurrency

What is Cryptocurrency?

Cryptocurrency is a type of digital or virtual currency that operates on decentralized networks. Unlike traditional currencies issued by governments, cryptocurrencies are powered by blockchain technology – a distributed ledger system that records all transactions securely and transparently.

Bitcoin and ethereum are among the most well-known cryptocurrencies. Bitcoin, often referred to as digital gold, was one of the first cryptocurrencies and remains the largest by market capitalization. Ethereum, on the other hand, is known for its versatile blockchain, which supports smart contracts and decentralized applications.

��

Benefits of Including Crypto in Your Retirement Strategy

Potential for High Returns

One of the primary reasons investors are drawn to cryptocurrencies is their potential for high returns. Bitcoin, for instance, has experienced exponential growth since its inception. In 2009, one bitcoin was worth less than a dollar. Fast forward to recent years, and its value has reached tens of thousands of dollars.

While past performance doesn’t guarantee future results, the historical gains of cryptocurrencies like bitcoin and ethereum highlight their potential for significant growth. For investors willing to take on higher risks, this potential can be appealing. However, investors should understand that cryptocurrencies’ future returns are driven by a different rationale than for bonds and stocks. Bonds and stocks are expected to provide growth in the form of either interest or capital appreciation based on the profits of the companies being invested in. In contrast, the future price of a cryptocurrency (and also any actual currencies like the dollar or euro) is based on what future buyers and sellers believe it to be worth, not some underlying source of cash flow.

Diversification

Diversification is a cornerstone of a sound investment strategy. Adding cryptocurrencies to a retirement portfolio may provide diversification benefits, as their performance often does not correlate directly with traditional assets like stocks and bonds.

However, it’s essential to approach diversification with caution. There are many periods where cryptocurrencies and stock markets move together, either upward or downward. Cryptocurrencies have historically experienced periods of high volatility, and they are speculative, so they should complement rather than replace traditional assets.

��

Risks and Considerations

Volatility

Cryptocurrencies are notorious for their price volatility. While they have delivered impressive returns in some years, they have also experienced dramatic downturns. For retirees or those nearing retirement, this level of unpredictability can pose significant risks, as it may affect their ability to rely on returns as income.

Regulatory Risks

The regulatory landscape for cryptocurrencies is still evolving. Governments around the world are grappling with how to classify, regulate and tax digital assets. This lack of consistent regulation can create uncertainty for investors. Future regulatory changes could impact the value and accessibility of cryptocurrencies.

Security Concerns

While blockchain technology is inherently secure, the broader cryptocurrency ecosystem is not immune to risks like hacking, fraud and loss of private keys. To mitigate these risks, it’s important to use reputable custodians or exchanges when investing in cryptocurrencies through retirement accounts. Additionally, ensure that your assets are stored securely, either in a hardware wallet or with a trusted provider.

��

How to Include Crypto in Your Retirement Strategy

Crypto Currency ETFs

There are numerous cryptocurrency exchange-traded funds available, which trade on established exchanges. These ETFs allow you to invest in a cryptocurrency like bitcoin, for example, without having to take custody of the coins themselves.

Crypto IRAs

A crypto IRA is a self-directed individual retirement account that allows you to invest in cryptocurrencies. These accounts offer tax advantages similar to traditional IRAs but provide the added flexibility of holding digital assets.

Benefits of Crypto IRAs:

• Tax-deferred or tax-free growth, depending on whether it’s a traditional or Roth IRA
• Diversification into alternative assets

Drawbacks of Crypto IRAs:

• Higher fees compared to traditional IRAs
• Increased risk due to the volatility of cryptocurrencies

401(k) Cryptocurrency Options

Some 401(k) plans now offer cryptocurrency investment options, either through direct holdings or funds that include crypto exposure. While this is a relatively new development, your employer my provide such options.

However, it’s essential to approach these investments cautiously. Ensure that your overall retirement plan remains diversified and aligned with your risk tolerance.

Choosing the Right Cryptocurrency

Not all cryptocurrencies are created equal. When considering which cryptocurrencies to include in your retirement portfolio, focus on those with:

• Strong market capitalization and liquidity
• A solid track record of adoption and use
• Clear technological advantages or unique value propositions

Diversifying Within Crypto Investments

Diversification applies within the cryptocurrency space as well. Consider spreading your investment across a mix of established cryptocurrencies and promising new projects. This approach can help balance the risks and potential rewards of investing in digital assets.

In addition, you can also consider investing in companies that stand to benefit from the evolving crypto industry, not just cryptocurrencies themselves. This approach is similar to the idea of selling “picks and shovels” during the gold rush instead of becoming a miner yourself.

��

The Bottom Line

Cryptocurrency has emerged as a compelling yet controversial asset class. For retirement investors, the decision to include crypto in their portfolio should be guided by careful consideration of their financial goals, risk tolerance and long-term strategy.

While the potential for high returns and diversification is attractive, the volatility and regulatory risks cannot be ignored. At ��Ѩ��Ƶ, we believe that any allocation to cryptocurrency should be professionally managed and limited to a small percentage of an overall portfolio – typically no more than 1% to 2%.

If you’re interested in exploring how cryptocurrency could fit into your retirement strategy, we recommend consulting with your planner. Together, you can weigh the potential benefits and risks and determine whether this speculative investment aligns with your broader financial plan. By taking a measured and informed approach, you can navigate the evolving world of cryptocurrency while making sure you’re staying on track to reach your retirement goals.