Can you plan your retirement with cryptocurrencies?

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Governments, economists and financial experts have all expressed skepticism towards cryptocurrencies as an asset class, going so far as to call it a Ponzi scheme. Despite this, cryptocurrencies have been massively adopted – with El Salvador making it legal tender and many other countries seeking to follow suit.

The price of several cryptocurrencies has also exploded in recent years. Take Bitcoin, for example; when launched in 2009, 1 BTC was worth a fraction of a dollar. Just over a decade later, in 2021, Bitcoin hit an all-time high of $69,000. Therefore, it is no surprise that people have started looking at cryptocurrencies as a vehicle for wealth creation, putting them on a pedestal with the likes of gold.

“Crypto has gained traction as an asset in recent years, and this can be attributed to the growth potential it has demonstrated. Even large investment firms are offering crypto-based products such as Bitcoin-backed loans, indicating immense potential for the asset class beyond just retail investors,” said Nischal Shetty, co-founder and CEO of WazirX. CNBC-TV18.

But can cryptocurrencies help you build a nest egg for your golden years? Are they a viable option for retirement planning? Many experts seem to think so, as long as you keep it well balanced with other actives. Many wealth management companies have also seen their clients add crypto to their retirement portfolios.

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Adding crypto to your retirement portfolio diversifies it and allows you to take advantage of Bitcoin’s inflation-hedging properties.

Fidelity Investments, an American financial services company, was the first to offer crypto in 401(k) retirement accounts. Since then, several other companies have also followed suit. “Investing in crypto can be a small part of your retirement planning. Crypto is a volatile market so shouldn’t be a big part of your financial strategy, but it can be a way to diversify your holdings,” said Danetha Doe, economist and personal finance expert. CNBC-TV18.

Things to Consider When Adding Crypto to Your Retirement Portfolio

Before adding crypto to your retirement portfolio, some of the critical factors to consider are your age, disposable income, and risk appetite. You should also make sure that the cryptocurrencies you choose have long-term potential. Keeping this in mind, most crypto experts would invest in established coins such as Bitcoin and Ether.

“If an investor wants to incorporate crypto into a well-balanced retirement portfolio, it should be around 10% of the total investment. However, the crypto one holds for retirement should be a bluechip with high long-term potential, like Bitcoin,” Shetty added.

The coins you select will indicate the level of risk you are taking. Since Bitcoin and Ether are the biggest coins, most people prefer them over others.

However, if you don’t already have enough retirement savings, you might want to avoid cryptos. Additionally, you want to be aware of any security issues such as hacking and malware attacks. Experts recommend that you keep your crypto in an offline or hardware wallet. These wallets are not connected to the Internet and ensure that only you have access to its private keys, which makes them impervious to hacks.

How can you add crypto to your retirement portfolio?

CNBC-TV18 spoke to an expert from one of India’s leading cryptocurrency exchanges, and their suggestion was to invest in crypto SIPs. You can plan your retirement with cryptos “only if you act smart and accumulate the best coins. For me, every bitcoin I accumulate every month through SIP is for my retirement,” they said.

Many crypto exchanges in India offer Systematic Investment Plans (SIPs) in cryptos like Bitcoin and Ether. If you invest Rs 100 every week in a crypto SIP plan for five years, your estimated returns will amount to Rs. 2,29,824. That’s a return on investment of over 2,000%; around 90% more than gold and bank FDs, according to ZebPay’s Bitcoin SIP Calculator.

They had a similar view when it came to NFTs. “Most of the NFTs that I buy are the ones that I will never sell at all. Make it a kind of retirement savings space.

“Having a technical background helps me understand the risks associated with each cryptocurrency very well – if anyone else is looking for an alternative to a mostly opaque NPS in an ever-increasing rupee, Bitcoin could be exactly what you need,” they added.

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