• Wed. Jun 22nd, 2022

The Bitcoin Market Plunge Is Why Crypto Shouldn’t Be In Your 401(k)

ByHazel R. Lang

May 11, 2022
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I tried not to look at my 401(k), but gave in to my curiosity.

Stock market volatility has significantly reduced my retirement portfolio. You might have seen it if you watched too. And it’s not just your stock holdings that can lower your returns. Bonds, generally seen as a safer haven to balance your equity holdings on a downtrend, were also hit.

“Oh my, what a perfect storm,” said Christine Benz, Morningstar’s chief personal finance officer.

“Markets seem to worry about a bunch of different factors at once,” she said.

Wall Street, dragged lower by tech stocks, racks up heavier losses

But if you’re concerned about the stock and bond market, then you’d be crazy about what is happening with bitcoin. The world’s leading cryptocurrency fell to just under $31,000 this week.

That’s a drop of more than 50% from Bitcoin’s all-time high of nearly $69,000 at the end of last year.

If individual investors are scared off selling – locking in their losses – during falling stock and bond prices backed by companies they know and understand, then what can we expect from those considering adding crypto? -more volatile and misunderstood currency to their retirement portfolio?

This is one of the questions that two senators ask themselves after fidelity Investments, one of the largest workplace plan managers, has announced that it will soon allow employers to offer bitcoins in their retirement plans.

In setting a cap, Fidelity said employers would allow employee crypto contributions of up to 20% per pay cycle. Investors can have up to 20% of the total value of their 401(k) account in a digital asset account, although employers can reduce the percentage that workers could invest in bitcoin.

Right now, I think the threshold is too high. If you plan to speculate in crypto, limit yourself to around 5% of your holdings, some experts I interviewed recommend.

Sen. Elizabeth Warren (D-Mass.) and Sen. Tina Smith (D-Minn.) sent a letter to Fidelity’s chief executive. The senators opened their letter by questioning whether the company should add bitcoin to its 401(k) investment plan menu. They are right to be skeptical of an unregulated investment asset.

Cryptocurrency is suddenly everywhere – except in the cash register

“Bitcoin’s volatility is compounded by its susceptibility to the whims of a handful of influencers,” Warren and Smith wrote. “Elon Musk’s tweets alone have caused bitcoin’s value to fluctuate by as much as 8%.”

The senators want to know how Fidelity will meet the challenge of educating pension plan participants so they can make informed investment choices about bitcoin. This is already a huge hurdle in getting people to understand the basics of investing in traditional asset classes.

Fidelity said its digital asset account offering will feature “safeguards, including but not limited to excessive transaction monitoring, investment limits, transparency, industry-leading education.”

“As a company with a 75-year history of putting our customers first, Fidelity shares the [Labor Department’s] and policymakers’ mission to protect the best interests of retirement savers,” the company said in a statement emailed in response to the letter.

Move over, crypto. Record numbers of workers are becoming millionaires with their boring 401(k)s and IRAs.

In 2015, a Pew Research Center survey found that although many people had heard of cryptocurrency, only 1% of Americans said they had ever collected, traded, or used bitcoin.

Last year, another Pew survey found that 16% of Americans have invested, traded, or used cryptocurrency. It’s a decent jump, but right now the usefulness of cryptocurrency is limited to scammers, crime syndicates and speculators hoping that other investors will pay them more than they spent on it. buy computer codes.

Blockchain is a digital ledger that keeps track of cryptocurrency transactions behind bitcoin and its crypto brethren. The technology has enormous potential. But what do regular investors understand about the risks of what remains an unconventional asset for the time being?

“The thing I come back to with crypto is that we can’t put a value on it,” Benz said. “We don’t have the same track record that we have for other major asset classes. We’re just guessing how it might behave and who the owners are and who the buyers are.”

Bitcoin’s ‘fire of truth’ is drenched by a bucket of water

Cryptocurrency “can be extremely difficult, even for expert investors, to assess these assets and separate fact from hype,” the Department of Labor wrote in a warning to companies marketing cryptocurrency investments. to 401(k) plans.

The recent stock market crash is a good lesson on the risk of adding cryptocurrencies to 401(k) plans and similar workplace retirement plans.

“It seems that the claim that it’s some kind of a diversifier for stocks is falling apart a bit day by day, as we see it behaving very similarly to the riskier stocks” , Benz said.

“When you Watch data, investors are struggling enough to amass assets for retirement using mainstream asset classes. If we add some very risky and volatile investments, it’s hard to imagine things getting much better.

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