Should Crypto Be In Your 401(k)? Experts Weigh In

Cryptocurrency trajectories have such extreme ups and downs it can be hard for the average person to follow whether they’re a good investment or not. Yet whenever a cryptocurrency skyrockets upward, investors get hungry to jump on board.

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This begs the question, is cryptocurrency a good investment for a retirement account like a 401(k)?

Experts explained how you should approach cryptocurrency in your retirement plans.

Rare To Find It In a 401(k)

First off, the chances that you’ll find crypto in your current 401(k) investment options is slim, according to Jay Zigmont, PhD, CFP®, founder of Childfree Wealth®.

“Most 401(k)s utilize a series of mutual funds for investing, and wouldn’t offer crypto. With the launch of ETFs (exchange traded funds) that track crypto, there may be options to invest in the future, but I have yet to see a crypto option in any of my client’s 401(k)s.”

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Exert Caution

While crypto can often deliver impressive results, according to Hao Dang, CFA and investment strategist at Consilio Wealth Advisors, “Crypto is a highly volatile asset without much justification supporting its price level.” He recommended caution.

Zigmont simply does not recommend investing in crypto at all in your 401(k) if you can avoid it. “While the technology behind crypto is very valuable and useful, crypto does not actually ‘produce’ anything, which makes it hard to value and predict.” 

In contrast, when you buy stocks, you own part of a company, and that company provides services and products that have value, Zigmont pointed out.  “With crypto, the price is based upon other people buying in, and the overall production of coins, not on an underlying company, product or service,” he said.

However, Keep an Eye Out

Despite his caution, Dang said, “It’s hard to ignore how much the U.S. government and banks have been touting it as a legitimate asset.” That doesn’t mean you need to rush in or put a lot of money into crypto, however.

“I suggest you size your crypto holding to no more than 5% of your 401(k) balance,” Dang said.

Zigmont is even more conservative in his recommendation, which he suggested should be no more than 1% of your allocation. “In that way, if it drops to zero you are not hurt, and if it goes to the moon you do have some exposure,” he said.

Consider Your Retirement Timeline

Another consideration is how close you are to retirement. “If you’re on the precipice of retirement, a highly volatile asset like crypto shouldn’t be in your 401(k) or any account that you’re relying on for stability,” Dang said. 

For those with a longer timeline until retirement, there could be a place in your portfolio. If crypto were to become “foundational in financial markets,” Dang said that the rewards certainly could be significant. But it’s just as likely for crypto to crash. In which case, you’d need more time to make up for those losses.

Younger Investors May Benefit

Even people deeply immersed in the crypto space urge caution. Robbert Bink, founder of Crypto Recovers, pointed out that all cryptocurrencies “are highly volatile assets” and come with “significant risk” in which the value can “surge or plummet within hours.”

This does not make it a good asset for older investors, but “for younger investors who have a longer time horizon, the high-risk, high-reward nature of cryptocurrencies may seem more appealing since they have time to ride out potential fluctuations,” he said.

Invest Outside of a 401(k)

If you want to invest in crypto, Bink said it’s better to do so outside your 401(k) through a trusted exchange, and only allocating a small, calculated portion of your portfolio. “This helps you stay diversified and protect your retirement savings.”

Moderation and planning are key, and it’s important to consult with a reputable financial advisor before you invest in any cryptocurrency.

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