Planning for your retirement can be a challenging task. Assessing timelines, estimating your expenses and beginning your estate planning are just some of the areas that will require your attention. If you have any retirement plans or pensions in place you may need to consult pension lawyers to understand any tax liabilities that may apply.
From an investment perspective, your appetite for risk is likely to be more conservative as you begin to plan for your future retirement. However, growing numbers of Baby Boomers and Generation X are embracing cryptocurrencies in their investment portfolios. Notorious for its high risk and volatility this modern, digital currency has sparked the interest of people across all ages.
In an effort to diversify your portfolio and add another source of income to your retirement plan, you too may be considering making a foray into the world of cryptocurrency. To guide your decision, this article has outlined some of the pros and cons of investing in crypto when it comes to your retirement plan.
Unlike fiat money where more can be printed, some cryptocurrencies have a finite number of coins in supply after which no new ones will be released. For instance, no new Bitcoins can be mined after the 21 million coin limit is reached. As an investor, this means your holding cannot be diluted through inflation and as demand exceeds supply the price of Bitcoin is likely to increase significantly, allowing you to profit from its increase in value.
Risk is inherent with any form of investment, however, compared to other asset classes such as real estate, equities or bonds, cryptocurrency is one of the most volatile investments. In November 2021, the price of Bitcoin was at almost $65,000 yet within three months its value almost halved as it plummeted to around $35,000 before rebounding to above $60,000 again. Given its speculative nature and the possibility for huge swings in value it can be difficult to know when it is the right time to invest in crypto.
Hedge Against Inflation
Since it isn’t linked to any currency or government, unlike the Euro or the U.S dollar, the price of cryptocurrency reflects the faith of its investors and the demand for it making it a useful hedge against inflation.
This is also true due to its limited supply in many cases. Unlike paper money which governments can print, digital currencies such as Bitcoin can offer a hedge against rising prices and some institutional investors are choosing Bitcoin as a tool against inflation, sometimes in favor of gold.
Although it has been touted as a secure way to invest due to its blockchain technology, investing in cryptocurrency can still leave you susceptible to cyber attacks and hackers. There have been numerous accounts of such hacks over the years with one the largest occurring in March of this year when $615m was stolen from Ronin Network. As an investor, your account is accessed using your private key. It is also possible to lose this key and as a result, risk losing your funds.
Now that you are aware of some of the risks and benefits involved with investing in cryptocurrency you can make an informed decision whether it should be part of your retirement plan.