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August 7, 2023

Crypto for Retirement—Understanding the Long-Term Potential of Digital Assets

Key takeaways 

  • Investing in crypto for retirement can enhance the return potential of your portfolio
  • Investors can get crypto portfolio exposure through a variety of investment structures 
  • Cryptocurrency investing increases the riskiness of your portfolio

Have you considered adding digital assets to your retirement portfolio? You may be enticed by stories of wild investment gains, but also understandably concerned about the risks of owning this volatile asset class. Adding crypto to your portfolio diversifies your investment risk across traditional and future-forward assets.

Savvy investors can reduce the risk of relying on digital assets to finance their golden years by becoming knowledgeable about cryptocurrency. Keep reading to learn everything that you need to know about investing in cryptocurrencies as part of your retirement plan.

What is investing in cryptocurrency for retirement? 

Investing in crypto for retirement is the practice of adding one or more digital asset investments to a portfolio for the purpose of generating income for retirement. Investors who add cryptocurrency to their portfolio for retirement purposes may hold a long-term view of digital currencies that’s generally positive. Crypto investing for retirement is a lot like planting an orchard and patiently tending for many years until it bears fruit. 

Investing in cryptocurrency for your retirement portfolio can mean owning just a single digital asset. A crypto retirement portfolio can also be diversified across many different digital assets. Your retirement portfolio may be heavily weighted in cryptocurrencies or barely hold any digital assets at all.

An investment in cryptocurrency can be structured in different ways. Let’s learn more about each of your primary options for gaining portfolio exposure to cryptocurrency: 

  • Direct token ownership: Investors can buy cryptocurrencies directly. Crypto exchange platforms enable users to conveniently buy and sell digital assets.
  • Crypto IRA: Any individual retirement account (IRA) that’s structured as a self-directed IRA can be used to invest in cryptocurrencies. Traditional, Roth, SEP, and SIMPLE IRAs can all potentially hold digital assets.
  • Crypto 401(k): 401(k)s can be attractive to cryptocurrency investors if the 401(k) is self directed. Solo 401(k)s are most commonly used by those with an appetite for retirement investing in digital assets.
  • Cryptocurrency exchange-traded fund: A crypto ETF is an exchange-listed fund that tracks the price of a digital asset (or digital asset security, like Bitcoin futures). Crypto ETFs are generally only accessible through over-the-counter exchanges. 
  • Crypto investment trust: Your investment in cryptocurrency may be structured as shares in an investment trust. Some investment trusts are only accessible to accredited investors.
  • Cryptocurrency savings account: Digital asset holders can consider depositing their cryptocurrencies into a crypto savings account. This alternative enables investors to earn steady interest on their crypto over time.

How to invest in cryptocurrency for retirement 

With so many ways to add cryptocurrency to your retirement portfolio, you may be wondering about how to get started with digital assets. Check out this step-by-step guide to adding crypto assets to your retirement plan:

  1. Learn about cryptocurrencies: Your first step is to get your head all the way around cryptocurrencies and how they work. Make sure to understand the price volatility of digital assets and the implications of that volatility for your retirement portfolio.
  2. Choose an investment structure: Your next step is to select an investment structure that best meets your needs. You can own cryptocurrencies directly, open a self-directed retirement account, or invest in a crypto-focused fund.
  3. Identify suitable investment opportunities: Now you’re ready to identify specific digital assets that you’d like to own. Self-directed investing enables you to include essentially any cryptocurrency or digital asset in your retirement portfolio.
  4. Add cryptocurrency to your portfolio: Whenever you’re ready, you can take the necessary steps to add cryptocurrency to your retirement portfolio. You may need a digital wallet to take possession of the digital assets that you wish to acquire.
  5. Monitor your cryptocurrency investments: Adding cryptocurrencies to your portfolio marks only the start of your journey with investing in digital assets. Stay actively informed about cryptocurrency news and developments to maximize the benefits of crypto for your retirement. 

Pros and cons of investing in cryptocurrency for retirement

Adding digital assets to a retirement portfolio can confer many benefits, but that doesn’t mean that crypto investing is all rainbows and sunshine. Keep reading to learn about the pros and cons of investing in cryptocurrency for retirement.

Pros of investing in crypto for retirement

Here’s everything to love about digital assets for retirement investors:

  • High return potential: The value of a cryptocurrency can potentially increase significantly over time. Retirement investors with long holding periods may benefit from substantial price appreciation.
  • Portfolio diversification: Adding cryptocurrencies to a retirement portfolio can diversify your portfolio across asset classes. A well-diversified portfolio may generate stable investment returns over time. 
  • Global accessibility: Investors everywhere can add cryptocurrency to their portfolios for retirement. The borderless accessibility of digital assets creates new opportunities for those wishing to prepare for their golden years. 

Cons of investing in crypto for retirement

Investing in cryptocurrency for retirement confers considerable risk. Here’s what to evaluate before plunking down any investment cash:

  • Price volatility: The prices of digital assets are notoriously volatile. A cryptocurrency is not guaranteed to gain value and its price could drop to zero. Cryptocurrency price fluctuations can cause unexpected changes in the value of your retirement portfolio.
  • Security risks: Cryptocurrency scams can and do occur. The evolving nature of cryptocurrency technology may create complex security risks for investors.
  • Lack of regulatory clarity: Digital assets are not well regulated. Crypto regulations can vary widely and are lacking in many jurisdictions. The regulatory landscape is rapidly evolving as the crypto industry matures. 
  • Technological complexity: Investors may be challenged to understand cryptocurrencies and exactly how they work. Adding exposure to a complex asset class can make your retirement portfolio more risky.

Beginner mistakes when investing in cryptocurrency for retirement

Intrigued by crypto investing for retirement, but nervous about making a mistake? Avoid the most common pitfalls of beginner investors by learning about some missteps that may occur at the start of your investing journey: 

  • Lack of research: Investing in digital currencies requires you to do your own research—and plenty of it. Not conducting sufficient research before committing capital is a common beginner mistake.
  • Not diversifying your crypto portfolio: An undiversifed cryptocurrency portfolio may be easy to establish and maintain, but it’s also the most risky. Beginner investors can be tempted to overlook the importance of portfolio diversification.
  • Passively managing your crypto investments: Investing in a rapidly evolving asset class like cryptocurrency requires active engagement as an investor. Taking a “set it and forget it” approach to investing in digital currencies is a regrettable beginner mistake.
  • Investing more than you can afford to lose: Cryptocurrency investing is volatile and risky. Many seasoned investors take a conservative approach by investing only what they are willing to lose.

Learn more about investing in crypto for retirement

Do you feel ready for the next steps, but daunted by the idea of doing your own crypto research? Digital asset communities thrive on engaging and informing new members, so getting involved with an active crypto community may be a great place to start. You can also engage in self-directed online research and consult with financial advisors and cryptocurrency experts. Your path to successfully investing in cryptocurrency for an abundant retirement is just beginning, but you’re already on the right track.

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