How do I invest in Bitcoin with my 401k? Does my employer allow me to do that? How can I make sure that I carry out this process smoothly? Are there some things that I should take into consideration as I go about the process? Welcome to this article in which I will be sharing information that will help you get answers to the above questions. Let’s get right into it.
The growth potential of Bitcoin
If you had invested about $5000 into Bitcoin in 2010, you’d currently be living a lavish lifestyle. Back then, not many people would have wanted anything to do with investing in an unknown currency. We have come a long way from those days to the present-day world in which most people would gladly accept any bitcoin given to them for free, or for a low price. Why is this the case? If the crypto-bulls we have had are to go by, then Bitcoin is one of the most promising assets that one can own.
Several speculative investors have asserted that Bitcoin will, in the future cross the $100,000 mark. This information in itself has led to many people suggesting that Bitcoin be accepted as an asset that can be used for retirement investment.
A significant number of widely recognized companies have already started accepting Bitcoin payments (as well as other cryptos), and this is just an example of how Bitcoin is gradually being assimilated into our daily life. Just like the internet in its early days, cryptos have encountered their fair share of skepticism, but that has not prevented them from taking their place in our lives. We are in a digital era and cryptocurrencies are at the top of the list of the digital money transaction methods we have in this world. It is due to such reasons that more people are beginning to take interest in investing in or simply owning Bitcoin.
How can you use your retirement savings to invest in Bitcoin?
If you have collected information from credible sources, and have decided that you include Bitcoin in your retirement investment portfolio, then it is highly likely that you can do so with the funds in your 401(k). If your current employer offers special IRAs known as self-directed 401(k), you may be able to purchase cryptos directly through the account. This is something that you will need to confirm with your Human Resource department, to check if this is an option at your company. If it is not available at the moment, you can discuss the possibility of making it available to the employees who are interested.
You can also decide to open a self-directed account on your own. It is similar to the regular IRAs, with the only difference being that it helps you to invest in asset classes that are otherwise not allowed in regular IRAs, including Bitcoin. Self-Directed IRAs are not as common as Roth IRAs or Traditional IRAs, so you have to do some extensive research about which brokers in the retirement investment industry are currently offering them.
While at it, you should check out the allowed investment options, just to confirm that Bitcoin is allowed. Not all self-directed IRAs support the same categories of asset classes and investment choices, so you don’t want to go through the hassle of opening one only to discover that it isn’t what you were looking for.
Allocation of Bitcoin to your portfolio
The one thing you should know is that investing in Bitcoin or any other crypto is a risky venture. Regardless of what you’ll hear from any financial guru, you should know that the value of these digital currencies can shoot in any direction, so you should be fully capable of stomaching any loss, without your entire investment portfolio being jeopardized. There is no defined percentage of your retirement investment portfolio that should be solely allocated to cryptos, but as a rule of thumb, you should keep it at about 10%.
If you’re nearing your retirement years, you should keep the risk at a minimal but keeping the percentage of Bitcoin invested in your portfolio lower. 0% will, of course, not give you any returns. What you essentially want to do is to ensure that you have an amount of money allocated to Bitcoin, in such a manner that if it hits the $100,000 mark, then you’ll have gained a significant amount of profit. Isn’t that what retirement investment is all about?
You do not need to utilize complex analysis tools to see how Bitcoin has performed over the years. A glance at its historical price chart will show you all that you need to see as an investor and will inform your decision as you head to the retirement years.
Other investment approaches
There are, of course, some other approaches through which you can invest your money in Bitcoin. Some of them are less risky, such as cryptocurrency stocks. There are already some well-established companies in this industry whose stocks are bound to increase in value if all cryptos eventually become a mainstream currency. An index fund that has crypto stocks is also a good option. These are options that you can take up if you want to play safe, but you may end up exposing yourself to other market forces, regardless of how impressively Bitcoin is performing (e.g. poor performance of the company that’s offering the stocks).
Generally, I think retirement savings are meant to be someone’s financial lifeline in their retirement years, hence should not be gambled with. It is possible to invest in Bitcoin with the savings in your 401(k), but you will need to choose the right company to open your SDIRA with, for a start. If you finally settle on adding Bitcoin to your retirement investment portfolio, ensure that you’re diversified into several other stable assets, so that you can shield your nest egg from the volatility of cryptos.
Thank you for making it to the end of this article in which I was providing a response to the question “How do I invest in bitcoin with my 401k”. I hope you found the article helpful, and that you’ll move forward better equipped to make your decision on whether to purchase Bitcoin for your retirement investment account. Let me know if you have any more questions about this topic – drop them in the comments section so that I can respond to them ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired!