How to Include Crypto in Your Retirement Portfolio

Cryptocurrencies are on a roll in 2024, with some of the most significant sector names piling up eye-popping gains.

Take the GraniteShares 2x Long COIN Daily ETF (ticker: CONL), which is an exchange-traded fund that’s up around 50% on a year-to-date basis. Or consider the ProShares Bitcoin Strategy ETF (BITO), standing at 49% for the year. The big fund companies are prospering, too. BlackRock’s iShares Bitcoin Trust (IBIT) and Fidelity’s Wise Origin Bitcoin Fund (FBTC) have experienced blockbuster fund inflows, landing in the positive ledger for 49 straight days.

The long haul has been impressive, as well. Despite periods of extreme volatility, Bitcoin’s price has soared more than 13,000% in the past decade. Ethereum hasn’t fared too badly, either. It’s up over 1,000% for the same period.

Few financial advisors say retirement savers should bet the house on cryptocurrencies, but more say crypto assets will be a fixture in long-term savings portfolios in 2024.

“Cryptocurrencies, while still relatively new and volatile compared to traditional assets like stocks and bonds, are increasingly being considered by investors looking to diversify their retirement portfolios,” said Cliff Ambrose, wealth manager at Apex Wealth in Danvers, Massachusetts, in an email. “Due to their high volatility and uncertain regulatory environment, cryptocurrencies can be considered a high-risk investment.”

“However, for those who believe in the long-term potential of blockchain technology and digital currencies, allocating a small portion of their retirement savings to crypto could potentially yield high returns,” Ambrose added. “As always with high-risk investments, the key is moderation and thorough understanding.”

— Understand the realities of cryptocurrency.

— Make age-appropriate investments.

— Do your homework.

— Minimize risk with funds.

— Allocate cryptocurrency in your retirement portfolio.

— Understand these facts if you’re new to cryptocurrency.

— Keep an open mind.

Understand the Realities of Cryptocurrency

Retirement savers may have to make uncomfortable and unfamiliar decisions when opting to include cryptocurrency in their portfolios.

“Investors should know they’re speculating and not investing when buying crypto assets,” said Robert R. Johnson, professor of finance at Heider College of Business in Omaha, Nebraska, in an email. “There is no way to fundamentally value crypto, so, by definition, you are speculating.”

Cryptocurrencies represent the consummate bubble, Johnson said. “Cryptocurrencies don’t produce anything, a fact that Warren Buffett eloquently explained at the Berkshire Hathaway annual meeting in May 2024.”

[READ: Is a 60/40 Portfolio Appropriate for Retirees?]

Make Age-Appropriate Investments

Other investment experts say cryptocurrencies can play a moderate role in a retiree’s long-term investment plan, but age and years-to-retirement issues are in play.

“Cryptos can contribute to a particular slice of investors at this point,” said Chris Barnes, president at Escalent, a financial services and product strategy research firm in Tolland, Connecticut, in an email. “It remains highly volatile, which is why when it’s going up, people think ‘I should add this to my portfolio,’ but when it’s down, they wonder why it’s even available.”

Since cryptocurrencies have a history of speculative volatility, age matters when including crypto assets in retirement accounts. “If you’re a younger investor who is relatively active in your investing, meaning you are checking in on things every couple of weeks and actively managing your investing — or someone else is doing it for you — then a 5% or 7% crypto investment makes sense,” Barnes said.

If you’re an older investor or passive investor, Barnes advises staying away from cryptocurrencies.

“Cryptos are not yet included in target-date funds for a reason,” he said. “If and when it becomes appropriate to be added to those types of funds, then cryptos will be appropriate to passive investors.”

A lack of long-term performance metrics should also give long-term investors pause. “We don’t know the long-term as we don’t have enough data,” Barnes said. “That’s why you want to regularly manage and check on your portfolio.”

Do Your Homework

When considering adding cryptocurrencies to a retirement portfolio, conducting thorough research is vital for retirement investors.

“Potential investors should start by understanding the basic technology behind cryptocurrencies and the specific assets they are interested in,” Ambrose said.

Reliable sources for crypto investment research include well-established financial news websites, crypto-specific news outlets and insights from reputable financial analysts specializing in digital currencies.

“Additionally, platforms like CoinMarketCap and CryptoCompare provide extensive data on various cryptocurrencies, helping investors make informed decisions,” Ambrose noted.

Minimize Risk With Funds

Instead of buying crypto coins like Bitcoin and Ethereum directly, retirement-oriented investors should take a close look at cryptocurrency funds.

Crypto ETFs and IRAs that focus on cryptocurrencies offer a more traditional approach to investing in this space, providing benefits such as easier access and added security,” Ambrose said.

Funds might be preferable for retirement investors looking to avoid the complexities and security risks of buying and holding cryptocurrencies directly. “However, for those who have the expertise, investing in Bitcoin or Ethereum directly might offer higher returns, assuming they can effectively manage the associated risks,” Ambrose added.

Investing in cryptocurrencies within a retirement fund can also bring unique tax considerations.

“For instance, using a self-directed IRA to invest in cryptocurrencies can defer taxes on gains until the investor takes a distribution,” Ambrose said. “However, it’s essential to be aware of the detailed IRS rules on retirement accounts and crypto assets to ensure compliance and to optimize tax benefits.”

[READ: 7 Low-Risk Investments With High Returns for Retirees]

Allocate Crypto in Your Retirement Portfolio

The appropriate percentage of a retirement portfolio to allocate to cryptocurrencies largely depends on the individual’s risk tolerance, investment horizon and financial goals.

“Generally, financial advisors might recommend a modest allocation, often suggested to be around 1% to 5% of the portfolio,” Ambrose said. “This allows for exposure to the potential upsides while limiting the downside risk resulting from the crypto market’s volatility.”

Once again, if you’re still in your 20s, 30s or early 40s, you can absorb a larger exposure to cryptocurrencies, as you’ll have more time to recover from serious price declines. Investors with a higher risk tolerance and longer time horizon until retirement can aim for a crypto allocation of around 10%.

Understand These Facts if You’re New to Crypto

For retirement investors with limited knowledge of crypto who hope to include it in their portfolio, think small.

Start with a 5% to 10% portfolio allocation, use diversified products such as ETFs, stick with reputable coin exchanges and wallets and regularly review your overall portfolio.

If you’re breaking into the crypto realm, stay with the biggest brands and names for reliability and security reasons. “The big companies offer the most stability,” Barnes said. “If you’re getting into ETFs, it’s big players like BlackRock. If it’s within your crypto wallet, you want to do that with experienced companies like Coinbase.”

“That doesn’t mean investment risk is gone, but you don’t want to depend on the smaller shops when you’re just getting going,” he added.

Also, note that the regulatory landscape is still evolving, so investors must stay informed about any policy changes that could affect liquidity or valuations.

[READ: 10 Essential Sources of Retirement Income]

Keep an Open Mind

Keep your options — and your eyes — open when investing in cryptocurrency. For retirees and preretirees, cryptocurrency investments can provide a great opportunity for growth, but caution and compliance are necessary.

Don’t ignore the lessons in investment history, either.

“I don’t see any reason to treat cryptocurrencies differently than any other new financial innovations,” said Vijay Marolia, chief investment officer at Regal Point Capital in Orlando, Florida, in an email. “For many of us, options, futures and ETFs did not exist when our grandparents started investing, but it didn’t stop them all from learning about new investment opportunities.”

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