News
Cryptocurrency for Retirement Planning? Buy These 2 Coins Now
Just a few years ago, the idea of including cryptocurrency as part of a retirement investment strategy would have been unthinkable. But with Wall Street now embracing the idea of cryptocurrency as an asset class in its own right, that seems to be changing. This is especially true for younger investors, who seem much more willing to take on additional risk if it means the possibility of retiring early.
From my point of view, there are still only two cryptocurrencies that make sense when saving for retirement: Bitcoin (CRYPTO: BTC) and Ethereal (CRYPTO: ETH). The returns they’ve generated over the past decade are impossible to ignore. And new investment products are emerging that could make them much easier to add to a traditional retirement portfolio. Let’s take a closer look.
1. Bitcoin
The most obvious cryptocurrency investment option is Bitcoinwhich has an incredible track record of outperforming the broader market. From 2011 to 2021, for example, Bitcoin was the best-performing asset in the world, and it wasn’t even close. Bitcoin produced annualized returns of 230% per year. The next best asset class, tech stocks, produced only 20% per year. While that kind of performance will be difficult to replicate in the future, Bitcoin produced returns of 150% last year, and is up 60% in the first five months of 2024.
With Bitcoin currently trading near its all-time high of $73,750, the big question on many investors’ minds is how much higher it can go. Some have suggested that Bitcoin could hit $150,000 by the end of 2025. And Ark Invest’s Cathie Wood has suggested that Bitcoin could climb to $1 million by 2030. If your retirement horizon is 10, 20, or even 30 years away, the sky’s the limit for how much higher Bitcoin could go.
Image source: Getty Images.
There is another factor that makes Bitcoin particularly interesting from a retirement planning perspective: the launch of new Bitcoin ETF Spots in January. Before this year, using cryptocurrency to save for retirement was more or less a patchwork, do-it-yourself project. It was complicated and inefficient because there was no standardized cryptocurrency investment product that individual investors could use for retirement. Now there is. And now it’s thought that Bitcoin ETFs will increasingly start to appear as options in retirement savings plans.
2. Ethereum
Just like Bitcoin, Ethereum has produced disproportionate returns over the past decade. When Ethereum was launched almost a decade ago, it was valued at just $0.30. Today, Ethereum is valued at almost $4,000. Of course, past performance is no guarantee of future returns, so the key is to focus on Ethereum’s future growth prospects.
The story continues
The good news is that Ethereum has a compelling long-term investment thesis. It is a dominant player in nearly every niche of the blockchain world, as well as the most diverse blockchain ecosystem. Even better, Ethereum’s much-hyped technical transformation (“The Merge”) in 2022 has laid the foundation for the next major growth phase.
And like Bitcoin, Ethereum will soon have its own ETFs. In late May, the SEC signed off on Ethereum spot ETFs. Investment firms still need to file some final documents with the SEC before the new ETFs can begin trading. But once they do, they could eventually become valuable tools for retirement planning.
Are Cryptocurrencies a Fit in Your Retirement Portfolio?
Of course, there are several downsides to adding cryptocurrency as part of your retirement portfolio. The most notable is the issue of volatility. Yes, Bitcoin and Ethereum have produced incredible returns over the past decade. But they have also had some very bad years where they lost more than half of their value. That’s the last thing you want in a retirement asset.
With that in mind, the most prudent advice is to allocate only a small portion of your retirement portfolio to cryptocurrencies. You’ll get the diversification benefits of cryptocurrencies as a unique asset class, but you’ll minimize the risks of a potential crypto crash. And to further minimize risk, you should probably focus on using the new spot Bitcoin and Ethereum ETFs rather than directly trading cryptocurrencies.
But here’s the thing: If you’re rapidly approaching retirement age or are far behind on your retirement savings needs, adding even a small amount of cryptocurrency to your portfolio could make a huge difference. As long as you take a long-term view and are aware of the risks involved with cryptocurrency, Bitcoin and Ethereum could help you retire in style. And potentially even a few years earlier than expected.
Should You Invest $1,000 in Bitcoin Now?
Before you buy Bitcoin stocks, consider this:
The Motley Fool Stock Advisor analyst team has just identified what they believe to be the 10 best stocks for investors to buy now… and Bitcoin wasn’t one of them. The 10 stocks that made the cut could produce monstrous returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you have invested $1,000 at the time of our recommendation, you would have $671,728!*
Stock Advisor provides investors with an easy-to-follow success model that includes a portfolio building guide, regular analyst updates, and two new stock picks each month. The Stock Advisor service has more than quadrupled the S&P 500’s comeback since 2002*.
*Stock Advisor returns as of May 28, 2024
Domenico Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
Cryptocurrency for Retirement Planning? Buy These 2 Coins Now was originally published by The Motley Fool