Americans Can Now Add Cryptocurrency to Their Retirement
On Thursday, August 7th, Trump ordered regulators to remove any barriers preventing Americans from adding cryptocurrencies and other high-risk investments to their 401 (k) retirement plans. While some cryptocurrency enthusiasts were excited, others were nervous.
Is adding cryptocurrency to 401K’s a good idea? Or should investors be cautious? Read on to learn more.
What is a 401K Retirement Plan?
For those who don’t reside in the United States, they may be unfamiliar with the term 401 (k).
A 401 (k) is a retirement plan unique to the United States that is not government-sponsored. Rather, it is held by an employee and may be managed by their place of employment. Their employer often matches paycheck contributions and may adjust holdings on behalf of the employee.
401 (k) s were designed to provide the average American with a way to efficiently save money—even if they didn’t have the investment knowledge necessary to do so. Unfortunately, 401K’s have not been adopted by every workplace in the USA, and many Americans are simply left without any sort of retirement.
Because retirement is mostly private in the United States (there is a social pension program, social security; however, it is not treated the same way), the private retirement savings industry is massive—currently worth a reported 4 trillion dollars on its own.
Is Adding Cryptocurrency to 401(k)’s Bad?
When Trump announced his intentions to sign an executive order allowing cryptocurrency to be added to retirement plans, it was met by mixed feelings. Some felt that this was a move in the right direction for crypto, which rebounded above $120k again this weekend.
But others were less enthusiastic, worried instead about individuals being unknowingly exposed to the risk—as many utilize an employer’s 401(k) plan and don’t have direct control over their specific investments. They also worry that it will make retirement portfolios less liquid, causing issues for some who withdraw early for large life purchases like a home or car.
In our opinion, there is nothing wrong with offering individuals the option to add cryptocurrency to their retirement portfolios. Rather, our issues come up when you consider that most Americans don’t control their own retirement investing. This means that individuals who don’t understand the risks involved in cryptocurrency could find themselves unwillingly invested. For this reason, we would hope that employers would only offer cryptocurrency options at the employee’s own risk rather than auto-investing large amounts of the combined portfolio.
Plus, adding cryptocurrency to portfolios was nicely wrapped up with “other private investments,” meaning Trump’s executive order will give Americans many more options for investment beyond just cryptocurrency. However, it will also bring a lot more risk as most of the private investment options outlined in the order have less government oversight than the currently available options.
The reason we think this aspect is so critical is because of the large number of scams in the cryptocurrency space. If we were just talking Bitcoin or Ethereum, we would proceed with much less caution. But what happens if an employer buys a large amount of a scam coin for their portfolio? Then, employees could stand to lose large portions of their retirement, all because of an employer’s lack of education in cryptocurrency.
Maybe we wouldn’t be as hesitant if the stock market crash of 2008 hadn’t happened. Remember, that crash was all because individuals started adding things they didn’t understand to their customers’ portfolios—all because of rumors and hype, two things which are rife in the cryptocurrency world. Experts in the space have already pointed this out and worry that Trump signing this bill into law is the result of a massive cash grab by Blackstone, one of the major firms responsible for lobbying for this bill.
When Will You Be Able to Add Crypto to Your Retirement Plan?
We advise that anyone truly wanting to add an asset like Bitcoin to their retirement portfolio, do so as soon as possible on a 100% private basis—this way you won’t lose anything to fees and will have full control over what you invest in. Just see our How to Buy Bitcoin article to get started.
Those who are only interested in adding cryptocurrency to their retirement via their employer-sponsored 401(k) should expect their employers to be able to do so in 180+ days. It could even take years, as now that Trump has signed an executive order, laws must be rewritten before anything can occur. Even then, we expect it will take even more time before widespread adoption occurs. Additionally, just because their employer can add cryptocurrency to their portfolio doesn’t mean they will, which is why we recommend individual investment for those specifically interested.
What Cryptocurrencies Should You Add to Your Retirement Plan?
As we mentioned above, we are 100% for adding cryptocurrencies to your retirement fund on a private basis. And basically, we recommend only adding coins with a good track record that offer a product you believe in. Remember, this is for your retirement and it is better not to take unnecessary risks.
While you should vet any coin you plan to add to your retirement plan in depth on your own, here are a few we recommend you look into. All of these are good starting points in the cryptocurrency industry.
· Bitcoin
· Ethereum
· Solana
· BinanceCoin
· Ripple
· Cardano
Anything else you may come across; we recommend being extremely skeptical of the project and ensuring you are prepared to accept the risks that come with adding them to your retirement portfolio.
Overall, while we aren’t against Americans adding cryptocurrency to their retirement, and even encourage it when it is done after research, we do believe Trump’s order may cause some issues. We worry about individuals who do not understand cryptocurrency adding scams or rug pulls to their portfolio. While we hope everyone will proceed with caution, it cannot be guaranteed, and any American involved in their company-sponsored 401 (k) should be on the lookout in the coming months.
