Question: G.S. from Fairfield: I might be able to guess, but what’s your thought on investing 401(k) money in bitcoin?
A: First and foremost, let us say that we’re all for having options when investing your retirement savings. And, of course, we’re all for diversification. But this latest development in the world of finance makes us a bit uneasy.
As you may have heard, Fidelity, the nation’s largest 401(k) plan provider, announced back in April that it would become the first large administrator to start allowing participants to invest their 401(k) into bitcoin (there will be a 20% cap, though individual employers have discretion to lower that threshold). However, in our minds, this news actually translates to something more along the lines of: Fidelity will start allowing its 20+ million participants to contribute up to 20% of their hard-earned retirement savings into a highly risky asset.
But let us be clear, this is no slight at Fidelity. Bitcoin has gained mainstream interest over the last few years, and Fidelity is just following the trend and providing an additional option for their customers. (Though you could also argue that having such a high-profile custodian now offering bitcoin gives it more credibility in the eyes of the average retirement saver; credibility that might not be warranted. But we digress.)
So this really comes down to you, the investor. Because just because you can do something doesn’t mean you should. Cryptocurrencies in general are quite volatile, and bitcoin is no exception. And yes, the stock market has its fair share of volatility as well – but the swings typically aren’t as big as what you’ll see with crypto. Not to mention that stocks have a proven, historical track record (bitcoin doesn’t). Another downside? There’s an increased threat of fraud and theft. According to the security firm Immeunefi, crypto investors overall lost more than $1.2 billion to scammers and hackers in the first three months of this year alone (and when that money is gone – it’s gone; it’s not insured like other types of accounts). Granted, it would be Fidelity’s job to keep your bitcoin secure – but you can’t deny the risk. And did we mention it’s unregulated?
Here’s the Allworth Advice: There’s a lot of hype around crypto and a whole lot of FOMO. But in our eyes, putting any money in any cryptocurrency is still akin to gambling – not long-term investing. Unless you are extremely, extremely aware of what you are doing (and have an iron-clad stomach for risk), we don’t believe something as essential as retirement savings should be exposed to it. Try thinking of it this way: Do you really want a chunk of your retirement savings – the money you’ll have to depend on to live for 20, 30, or even 40 years – at the mercy of such a speculative asset?
Q: Taylor in Pleasant Ridge: When interest rates rise, why don’t savings accounts follow suit as quickly as loan rates?
A: Funny how that works out, right? During the pandemic banks saw a record level of deposits as Americans saved more, so banks feel like they don’t need to offer more attractive rates (i.e., higher rates) to gain new customers since they don’t need the money. Plus, offering higher rates will cost them money. (Because remember, commercial banks are a business. And while they exist to serve their customers, at the end of the day they’re typically going to do what’s best for their bottom line.)
The Allworth Advice is that if you’re looking for the highest possible rates on a savings account, an online bank (or local credit union) will still likely be your best option. Just make sure any institution you decide to entrust your money with is FDIC-insured.
f you, a friend, or someone in your family has a money issue or problem, feel free to send those questions to [email protected].
Responses are for informational purposes only, and individuals should consider whether any general recommendation in these responses is suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional adviser of his/her choosing, including a tax adviser and/or attorney. Retirement planning services offered through Allworth Financial, an SEC-registered investment advisor adviser. Securities offered through AW Securities, a registered broker/dealer, member FINRA/SIPC. Call 513-469-7500 or visit allworthfinancial.com.
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