Should Millennials Rely On Crypto For Retirement?
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New research shows that large parts of the millennial generation are betting big on cryptocurrency – perhaps too big. In fact, more than a quarter of them have so much faith in Bitcoin, Ethereum and the rest that they’re betting their pensions on portfolios filled almost entirely with crypto.
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There is no doubt that blockchain-based currency is poised to play an important role in the future of investment, the economy and digital life in general. But when it comes to the trend of millennials gambling their retirement on computer-generated tokens, GOBankingRates spoke with several experts who think they may be putting way too much faith in a trendy but risky and uncertain investment.
Here’s what these experts suggest.
Don’t bet your future on something risky and unregulated
In giving his opinion on whether teens and young adults should trust crypto for their retirement funds, Clark Hodges, co-owner of Hodges Capital Management, is crystal clear on where he stands.
“No, no, no,” he said. “When I sit here and think about millennials considering cryptocurrencies as the foundation of their retirement plans, it really worries me about their future.”
He’s not against crypto playing a role in any portfolio, but he believes banking on Bitcoin is a recipe for regret in old age — and it’s not just crypto. Any high-risk, high-reward asset should make up only a small piece of your portfolio pie, especially one that’s still so new that its regulatory guidelines haven’t even been finalized.
“A risky asset should be a small part of a retirement strategy, not the whole strategy,” he said. “Cryptocurrencies are assets that are still very new and unregulated, which increases the risk. What will the landscape look like after the government comes in and has its effect on the cryptocurrency market? I wouldn’t want to own cryptocurrency in a big way when it plays out right right before our eyes. Traditional stocks and bonds and real estate as a long-term retirement strategy remain the most proven way to grow wealth over time. Do what has worked for decades. Buy quality US companies with quality earnings that are appreciating because the companies make more money year after year.”
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Do you have the self-discipline needed for slow and steady runs?
It’s easy to see why crypto is such a tempting lure when the portfolio tracking chart is skyrocketing.
“Crypto is exciting to invest in,” said Matthew Robbs, founder of Smart Saving Advice. “If you choose the right coin at the right time, you can get five, 10 or 100 times your investment in a matter of months or years.”
However, choosing the right coin at the right time is easier said than done, and overpriced speculative investments have a way of crashing hard.
“In the last two years, Bitcoin went from $10,000 to $55,000 in five months and then went from $55,000 to $33,000 in four months,” Robbs said. “Bitcoin then went up to $69,000 before plunging to $17,000 over a seven-month period.”
The remedy for such extreme volatility is the same remedy that can dampen the turbulence in the stock market – and provide steady and consistent contributions over time that will smooth out the peaks and valleys. The simplest method is dollar cost averaging, but it takes a lot of discipline when the highs are so high and the lows are so low.
“The volatility of crypto is great when it goes up, but most people don’t have the guts to continue dollar-cost averaging crypto when it drops 75% in a seven-month period, as it has recently,” Robbs said. “Investing a portion of your retirement funds in crypto may be a good idea as long as you continue to do so on a monthly basis for many years to come.”
Whatever you do, don’t sink what you have into the crypto markets all at once.
“Investing your entire retirement income in crypto only to have it drop 75% over a seven-month period would probably cause you to give it up,” Robbs said. “Just before it starts to take another run.”
The same rules apply regardless of generation
The biggest mistake may be to assume that big bets on crypto are OK for one generation but not for another. While younger investors typically have more time to absorb larger losses and therefore can afford to take greater risks, the basic rules of the game apply regardless of age demographics.
Remember, in the future you will live and die by today’s investment decisions. Make them count, because there won’t be anything to do about it.
“No one, much less millennials, should be relying on cryptocurrency to fund their retirement plan,” said Taylor Tepper, an investment and retirement writer for Forbes Advisor. “You have one chance to build up enough savings to enjoy a secure stream of retirement income. You’re better off investing those savings in a well-diversified portfolio of stock and bond funds—a recipe that’s proven successful over decades—than guessing Bitcoin’s long-term success. Fans of cryptocurrency will probably be better off investing a small portion of their savings – say 5% – to satisfy the itch. However, anything more is too risky.”
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