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Allworth Advice: Bitcoin in 401(k): Good idea… or bad idea? - The Cincinnati Enquirer

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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?

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