Bitcoin is far too volatile for retirement portfolios. That’s what I’ve heard from most financial advisors for several years. Through huge upswings and downswings in bitcoin prices.
Of course, I disagree. I think bitcoin is perfect for retirement plans, and vice versa. Other crypto assets like ETH and SOL have a place as well, for different reasons.
Remember, this is an opinion. Please do your own research, assess your own risk tolerance, goals, and needs.
About Retirement Planning
First we need to discuss financial planning for retirement. The ideal thinking is, “I’ll need money to live on when I’m no longer earning money from work.” You determine how much you can afford to save each month and year, and then work with an advisor to choose a vehicle. That could be a combination of 401k, IRA, and any pension you might receive from your employer.
If you’re closer to retirement, you have a better idea of the annual spending once you stop working. You know how much you’re spending on home, auto, insurance, health, and how much you’d like to spend on travel, grandkids, etc.
If you’re younger and farther from retirement, the goal is really just to accumulate as much as possible. Tax-efficient plans like 401k and IRAs help since you don’t have to pay taxes along the way.
Important to note in retirement planning. Not only do you need to accumulate enough to live on, but you have to plan for your expenses to increase. That’s typical inflation.
So your retirement savings need to grow well above and beyond the rate of inflation. It takes long-term thinking about growth of assets.
How does this work with Bitcoin?
Bitcoin fits well into retirement plans. The long-term growth potential for bitcoin matches the long time horizon for most retirement plans. The scarcity of bitcoin also makes it ideal as a hedge against inflation. A hedge against inflation is exactly what a retirement plan is meant to be.
We don’t want you trading much in your retirement plan. The goal is to choose good growth investments, diversify, and let it cook. Too much trading often leads to lost growth…trying to time the market.
When investors hold bitcoin on exchanges, they’re tempted to trade. They try to find the top and bottom, and sell and buy accordingly. The mindset of retirement plans is to set it and forget it, which is ideal for holding bitcoin. The long-term nature of the asset fits the narrative of the plan.
So…if I’m thinking of my own retirement. There will come a day when I no longer can, or no longer want to work every day. I’ll have to have enough money saved up to fund my life starting the day I retire, until my wife and I are both deceased. Part of that planning is saving enough. Part is investing in growth assets. Part is having assets that should appreciate with inflation.
I can retire in my 70s and know I can enjoy the rest of my life, from a financial perspective.
Bitcoin fits that narrative perfectly as a portion of my portfolio. I’m less likely to trade the bitcoin since its in my retirement plan, allocated for the next 25 years.
Other Crypto Assets
Other assets like ETH and SOL might fit the retirement plan narrative as well. ETH and SOL are not meant to be hedges against inflation, and don’t have a scarce supply.
However, investments in either ETH or SOL, or other tokens, might be seen as early technology investments. I want the value of my assets to be much higher in a few decades when I retire. One of the best ways to grow my wealth is to invest early in growing companies, specifically in technology.
While Ethereum and Solana are not really companies, the thinking is the same. We all might want some allocation to growth and technology. If you think more traditional assets will move onchain in the future, then ETH and SOL would have more value. Imagine putting some of your IRA funds into Amazon or Google early in their life.
Of course, for most people, crypto should not occupy a large allocation. Bitcoin has already grown in terms of acceptance as an investment, and the value is in holding it as an assets. ETH and SOL really require adoption of the underlying networks to bring value to the tokens.
As an investor, you need to do your own research, and really understand the risks. However, the long-term nature of retirement plans match the patience needed to allow crypto assets to grow.