Opinion: I’m a financial advisor and I don’t recommend putting bitcoin in your 401(k)
As a financial advisor, I was surprised to see that Fidelity Investments is going to give employers the option to add bitcoin to their 401(k) menus this year. This is a big deal, given that Fidelity is a leading retirement trustee and a dominant player in the investment market.
While Fidelity’s decision renders some bitcoin BTCUSD details,
easier investments, I remain hesitant to recommend cryptocurrencies to my clients. Except, perhaps, for those with a strong appetite for risk, who are big fans of cryptocurrencies and who can otherwise afford to lose money.
Other than early adopters making money, I currently see no argument for buying bitcoin as an investment. That’s a terrible reason to invest in something.
There are no productive individuals, companies or governments behind it, no reason for it to be profitable, other than it being rare, as it is limited to 21 million coins. Scarcity is a reason many give for buying gold or silver – there is only a limited amount of it.
This is often the case for other products. For example, let’s buy wheat because we think there will be higher demand leading to higher prices. Gold, silver and commodity prices however are very volatile and there is no long term history of strong positive real returns for them, unlike stocks, bonds and oil. real estate. This is why we do not buy gold, silver or other commodities for our clients. We believe this is more short-term speculation than investment. (I know that commodities can be used as hedges for different industries, I wonder if someone without those interests should buy commodities to speculate, and I don’t think they should.)
Despite bitcoin proponents embracing the fact that it is a non-sovereign currency, this is still not beyond the scope or reach of governments. The US government has caught at least a few crooks in cases involving crypto.
I’m skeptical that most people will use crypto as common currency due to its speculative nature. Who is going to spend crypto on a Tuesday to buy lunch if it can be worth 5% more later in the afternoon? Although it is widely adopted and used as a currency, I would not recommend it because we do not invest in currencies, again because there is no history of positive real returns. We don’t buy dollars; we buy investments denominated in dollars.
Some see crypto as an inflation hedge, but it’s lost a lot more value than the dollar has in the last inflationary year and it’s not old enough to have a history of inflation hedging in the past. during previous inflationary periods.
Some of the other issues surrounding it are that you have to buy it outside of your traditional investment channels, think Coinbase Global, not Charles Schwab, and it’s not secure – even the Wolf of Wall Street s got his digital wallet hacked.
You may also encounter a major problem by simply forgetting your password. Who hasn’t forgotten a password? We’ve all heard the story of the programmer who lost around $220 million because he couldn’t access his account. He says he is at peace with it now.
The Super Bowl… and Ukraine
So I was already skeptical about crypto, then the Super Bowl ads blocked it for me. They seemed so reminiscent of tech ads like pets.com that aired during the Super Bowl just before the tech bubble burst. Tom Brady imploring you to step into the game left me wanting no part.
Then Ukraine arrived. As mentioned earlier, bitcoin can be used as a non-sovereign currency, and there seems to be a case for it. You can transfer bitcoins to other people all over the world without the costs or delays of transferring regular money, like dollars, and without the various governments getting in your way.
It was used to help the Ukrainian government and people, and they needed all the help they could get. Maybe this leads to more change, innovation and productivity than we can see now? Maybe other uses will appear or current uses will lead to more changes for the better? Perhaps totally unforeseen uses will become commonplace? I do not know; I cannot predict the future. Bitcoin seems like a big game changer – and I don’t think anyone knows exactly where it will lead.
Fidelity’s entry into this market and the ability for employers to offer it in their 401(k) will change this market. This will fix some of the known issues with bitcoin investing. If Fidelity is acting as the custodian of your 401(k), you don’t have to worry about having to buy it through a new channel or keep it safe – that’s Fidelity’s job now.
And if you forget your Fidelity password, that’s okay. Click on the “forgot password” link. It’s much easier to fix than forgetting your digital wallet password – where there’s no one in a call center to help you.
If you want to invest in bitcoin and can afford to take the risk, Fidelity has the door open for you.
Michael J. Garry is a Certified Financial Planner who runs Yardley Wealth Management in Yardley, Pennsylvania. He is the author of two books, “The Smart Person’s Guide to Financial Planning & Investments: A Simple and Straightforward Approach to Understanding Your Personal Finances” and “Independent Financial Planning: Your Ultimate Guide to Finding and Choosing the Right Financial Planner.”
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