Investing in 401(k)s just got a whole lot more interesting...
Last month, retirement-plan giant Fidelity announced that it will soon allow investors to buy bitcoin in their 401(k)s.
Fidelity is the first major 401(k) administrator to do this. And it's the largest with 23,000 companies that it manages retirement plans for.
Under the plan, Fidelity would let savers allocate as much as 20% of their nest eggs to bitcoin, though that threshold could be lowered by plan sponsors. Investors will be limited to just buying bitcoin initially. But expectations are that other digital assets will be made available in the future.
Reaction to this news has been mixed...
There's a lot of worry since bitcoin has historically been volatile. In fact, Labor Department officials believe Fidelity's plan "risks the retirement security of Americans."
That statement seems a little overboard. But it's a fair concern... After all, many cryptocurrencies are speculative. Many have been hammered over the past year.
Imagine getting close to your retirement age only to see a good chunk of your 401(k) get cut in half if bitcoin experiences one of its meltdowns.
Typically, 401(k)s have been viewed as a safe spot to park your money. You buy some stock and bond fund and let it grow tax-free over many decades. The thought of investors moving their money from those funds to bitcoin – and watching bitcoin's value fluctuate every month – can be troubling.
Also, the 20% possible allocation to bitcoin scares a lot of investors. We've preached diversification many times before in Health & Wealth Bulletin. Having 20% of your portfolio in any one investment is a no-no for just about any financial advisor.
In my opinion, a 5% allocation to bitcoin sounds a lot better than 20%.
But on the other end of the spectrum, crypto bulls couldn't be more excited...
Bitcoin offers a chance at generational wealth, something that many stock and bond funds cannot. Despite its volatility, bitcoin is up 800% over the past five years.
And many experts think bitcoin's price still has massive upside.
Just like we've seen with Fidelity, cryptos like bitcoin have been slowly adopted by major institutions.
Last year, JPMorgan became the first big bank to give retail clients access to bitcoin. PayPal now lets users buy crypto on its app. And Twitter helps people show appreciation for tweets by tipping with bitcoin.
Adding bitcoin to 401(k) investment options is just another step in the right direction.
If major institutions continue on this path, the market for crypto's could expand rapidly.
As of March 2022, more than 81 million people created unique bitcoin wallets on Blockchain.com, a site that makes buying Bitcoin possible. That's 72% more than a year earlier and a 237% increase since 2018.
Still, bitcoin is not that widely adopted. Only 22% of the U.S. adult population owns it.
By some estimates, the global blockchain market will grow by $39 billion by 2025.
As you can see, there is tremendous growth still possible for cryptos. And if the market is going to grow, investors in 401(k)s can now get a piece of that.
We're sure demand for bitcoin in 401(k) accounts will grow over time. And so will other cryptos as they are added by Fidelity and other retirement-plan companies.
Of course, investing in something like crypto's comes with risk... There are some that are not worth owning. Some are far too risky.
If you are interested in owning bitcoin in your 401(k) – if you have Fidelity – we'll have more details and advice in a future issue.
For now, this is a positive step for bitcoin to be more widely accepted.
Our in-house crypto expert, Eric Wade, recently revealed the story of how one subscriber went from nearly broke to turning his last $50,000 into a $54 million fortune.
What We're Reading...
- Fidelity plans to offer Bitcoin in its 401(k) retirement funds. But is it best for you?
- The Government is going after crypto in 401(k)s.
- Something different: Nasa rover begins key drive to find life on Mars.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
June 23, 2022