Investors are increasingly interested in including cryptocurrencies in their retirement portfolios. Among these, Bitcoin has emerged as a critical focal point. Over the last half-decade, there’s been a lot of volatility in Bitcoin’s price. It has fallen by 45 or more percentage points on four different instances. It has gone on to see absolutely mind-blowing price appreciation of 1,043%. This increase dramatically exceeds the S&P 500’s increase of 94% over the course of the same period.
In recent months, Bitcoin’s value has soared by 54%, contrasting sharply with the S&P 500’s modest 11% increase over the past year. This lack of parity underscores the volatility of Bitcoin thus posing both a risk and opportunity for life-altering gains. In fact, earlier this year, the S&P 500 was just a stone’s throw from bear-market territory. Instead, it has more than recovered from those losses and is now trading mostly sideways as it approaches 2025.
Fidelity Investments recently opened its own crypto IRA account. Now, investors can directly invest their retirement dollars into cryptocurrencies that have taken the world by storm and gained extreme popularity, like Bitcoin. This decision couldn’t come at a better time, as more and more investors look to high-risk assets to diversify their retirement portfolios.
Despite all of its promising progress, experts warn that because Bitcoin is so volatile, it can be dangerous for investors, especially those close to retirement. Bryan Armour, director of passive strategies research at Morningstar, noted that retirement-account holders have experienced all-time highs and all-time lows of emotional roller coasters. They have changed from terror to relief, all due to a capricious market. He specifically touted the promise of investing in cryptocurrency. People need to be aware of the risks that are inherent in these investments.
Reena Aggarwal, director of the Georgetown Psaros Center for Financial Markets and Policy, emphasized that the decision to invest in Bitcoin should be contingent upon an individual’s risk tolerance.
“There’s potential for growth, but there’s also big downside risk. So it really depends on how much risk the individual is willing to bear.” – Reena Aggarwal
Experts additionally told Insider that it’s too early to really know how to predict the movement of a new asset class like crypto. Kate Ashford, a NerdWallet investing expert, said it’s hard to know what’s a good investment in crypto.
“When you buy crypto as an investment, you’re betting that the value will go up, but there’s no guarantee that it will, and in fact, prices can drop pretty steeply.” – Kate Ashford
Investors should consider their time horizon. Ashford thinks the younger people are more ready to recover if the investment goes wrong. Many older investors will find themselves in a difficult position if market conditions suddenly reverse course.
“If things go south, they may not have enough time to turn it around.” – Reena Aggarwal
The answer lies in institutional adoption of Bitcoin, which should assuage some of the risks related to volatility. She said that in addition to being more transparent, institutionalization might provide a clearer long-term picture that would help create greater market stability.
“Institutionalization does make things less risky because it brings transparency.” – Reena Aggarwal
While there are obvious benefits to allowing crypto in retirement accounts, experts encourage consumers to proceed with caution. Ashford’s advice was to approach cryptocurrency investments the same way you would risky penny stocks.
“If you’re dying to have some crypto in the mix, it may be smart to treat it like a high-risk stock and only dedicate a small percentage of your portfolio — or only as much as you can afford to lose.” – Kate Ashford
Bitcoin has been outperforming all major traditional investments, such as the S&P 500, but gold. Anyone approaching retirement should carefully assess their current finances and think about their confidence in taking risk. As the rapidly changing world of cryptocurrencies trends upward, investors seeking to diversify their portfolios face new and exciting possibilities along with hidden dangers.
