Cryptocurrencies are in the news again.
Fidelity Investments, the largest retirement plan provider in the United States, has announced that it will allow its investors to purchase Bitcoin for 401(k) plans.
Lots of people buy Bitcoin on the side, but should you invest in Bitcoin for your 401(k) plan?
Before you decide, ask yourself why you are considering doing it. Is it because Bitcoin is more exciting and fun than regularly investing in “boring” companies like AT&T, Microsoft, and McDonald’s?
I consider stocks to be safer and more reliable. But they don’t have as much upside potential as Bitcoin, do they? Well, let’s do the math.
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I plugged some numbers into the StockChoker.com calculator to see what $10,000 invested in these three companies is worth today.
Ten thousand dollars invested in Microsoft in 2012 is worth $109,073 today, an increase of 990%. The same amount invested in AT&T would be worth $14,315 (43% increase), and if invested in McDonald’s, it would be worth $34,687 today (246% increase).
If you had invested $10,000 in the entire S&P 500, your money would have grown to $36,766, an increase of 267%.
These are great feedbacks! Nothing boring there. But let’s compare this to an investment in Bitcoin.
In May 2012, a single Bitcoin could be purchased for around $5. As of this writing (May 8), one Bitcoin costs $34,544.
So, according to the Bitcoin Return Calculator at dqydj.com, $10,000 invested in Bitcoin in May 2012 would be worth over $71 million today.
Let that sink in for a minute. Or not. If you’re in a certain frame of mind, it can be a little depressing, I guess.
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If you are considering using Bitcoin for your 401(k) because you expect its price to rise again by nearly seven hundred thousand percent, that probably won’t happen.
“Good”, you say. “When Fidelity comes up with more crypto, I’ll just pick another one for my 401(k) that hasn’t taken off yet.”
OK. But which one?
According to ExplodingTopics.com, as of March 2022 there were 18,465 different cryptocurrencies. Pick a good one, but watch out for those that might fail. There are already 8,102 of these “dead” cryptos.
Another way of thinking: nearly 44% of all cryptocurrencies have failed.
Some failed because they were frauds, like BitConnect and OneCoin, while others failed because people just stopped trading them, like BoringCoin.
But don’t worry, if you can’t find a cryptocurrency you like for your 401(k), just create your own! If you don’t have the tech skills to do this, you can pay someone at Fiverr.com to create it for you.
Fiverr offers many sellers to create a cryptocurrency just for you. One of his recommended sellers offers three different levels of options. It will charge you either $395, $995, or $2,980, depending on the options you select.
I don’t know about you, but the fact that anyone can create their own cryptocurrency doesn’t motivate me to buy one.
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Do you really want to risk your retirement on a type of volatile money that anyone can create, one that has a high failure rate, one that is not backed by any assets, and one that is banned by China and seven other countries and severely restricted by dozens of other countries?
Remember, we’re talking about your retirement money. You need this money to pay your bills for the rest of your life.
If you still want to, go for it. It is, after all, your money.
I encourage you to limit your investment in Bitcoin and other cryptos to a very small portion of your 401(k), like three percent or less. Invest the rest of your retirement money in stocks and bonds, two different types of assets with a proven track record.
No, they probably won’t skyrocket like Bitcoin did, but they have shown that over time their value always goes up.
Bitcoin and other cryptocurrencies are too new to know what they will do over time. Why gamble with your retirement?
Dave Kinzer is a music teacher and financial coach in Springfield. Contact him at www.davekinzer.com. His column will appear here every other Wednesday.
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