Many investors invest their money in cryptocurrencies, with the younger segment making up the majority.
A recent survey by Select and Dynata found that nearly half (45%) of 18- to 34-year-olds said they had bought cryptocurrencies. They make up the largest proportion of cryptocurrency investors, closely followed by 37% of 35 to 44 year olds. In the meantime, only 11% of investors between the ages of 55 and 64 and only 4% of investors over 65 buy the digital currency craze.
Investors can buy coins for a number of reasons, whether it’s hoping for quick profit, long-term growth potential, or just to enjoy the excitement. However, some young investors are choosing cryptocurrencies rather than investing for their retirement and here is the problem.
The same survey found that 44% of investors with less than $10,000 in investable assets are currently in crypto, but only 26% have a 401(k) or 403(b) and 17% have an IRA.
While cryptocurrencies can certainly be fun, short-term investments, Lindsey Bell, Director of Markets and currency strategist at Ally Invest, does not advise against investing a significant portion of your portfolio in these assets or losing your pension fund.
Long-term investments should always take precedence over short-term investments, he says. The benefits of a 401(k) or IRA, including a business contribution, should be pursued before short-term joke funds are allocated.
Here’s what to consider
Tony Molina, CPA and Product Evangelist at Wealthfront (the first robot advisor to offer crypto access, up to 10% of your wallet), agrees that the excitement of joining the cryptocurrency craze shouldn’t not stand in the way of wealth creation for a long time. term for retirement And it’s even more important if your employer contributes 401(k) (hey, that’s basically free money).
But saving for retirement doesn’t necessarily mean losing cryptocurrency if it’s something you’re really passionate about, says Molina. If you have a 401(k), he advises you to contribute at least the amount corresponding to your employer and then think about buying cryptocurrencies with the additional funds you have left. For example, if your business pays up to 6% of your salary, contribute 6% to double what you can set aside before planning an investment strategy elsewhere.
While investing in cryptocurrencies is easily accessible through financial applications such as Square and PayPal’s Cash app, it carries risks: Most cryptocurrencies and cryptocurrency tokens are subject to significant price volatility, which is why it is viewed as a risky option for many retail investors.While it’s easy to get caught up in the hype and potential instant gratification of cryptocurrencies or other hot asset classes, staying on the ground in reality is also important, says Bell. These types of assets are very volatile and, while they are becoming more common, the future of growth and regulation remains uncertain.
Don’t have 401(k) access to save for retirement?
For those whose companies do not offer retirement plans, a priority should be opening a tax-privileged traditional or Roth IRA before setting aside money on cryptocurrencies.
An IRA is a great way to save for retirement because you have a lot of control over your investments, you may be eligible for some great tax breaks, and you can open an account yourself without being dependent on your employer, says Molina.
You can find IRA options offered by many national banks, investment firms, online brokers, and robo-advisors. Pick those that offer the best IRAs for all types of investors, as well as the best Roth IRAs to grow your money tax-free. , Fidelity Investments and Betterment took both rankings.
Bottom line
Whether you’re looking to invest in crypto because it has done well in the past or because you are feeling the pressure to see everyone else do it, it’s important to prioritize your retirement savings first.Crypto’s past performance doesn’t necessarily mean it will continue to do well in the future and FOMO is not a valid reason to get involved, warns Molina.
Investors interested in crypto can get the best of both worlds by contributing enough to their 401(k) first to hit an employers match, if offered, or by directing funds to an IRA. If you have extra cash you should consider buying cryptocurrencies, but make sure you know what you are getting yourself into beforehand and don’t allocate more than 10% of your portfolio to these risky investments. Remember, diversification is the key to a successful investment portfolio.
Before investing anything in an investment, especially riskier assets like cryptocurrencies, make sure you have a logical argument as to why you think the investment will increase in value over time, said Molina
