Does Cryptocurrency Belong in Your Retirement Portfolio?
A significant number of Americans believe that cryptocurrency has a role in their retirement savings. A recent survey conducted by NerdWallet indicates that around 10% of U.S. adults with retirement accounts hold some form of cryptocurrency. The enthusiasm is particularly pronounced among younger investors, with 18% of millennials and 14% of Gen Z respondents indicating they have crypto investments in their retirement funds.
Recent performance data shows that crypto investors have seen considerable gains. Bitcoin, the largest cryptocurrency by market capitalization, is currently valued at approximately $115,600, marking a remarkable 99% increase over the past year. Integrating cryptocurrency into retirement portfolios has become more accessible, with brokerages like Fidelity now allowing direct cryptocurrency investments in IRA accounts. Other firms, such as Charles Schwab, have started offering access to crypto exchange-traded funds (ETFs). Last month, an executive order signed by President Donald Trump initiated steps to incorporate alternative assets, including cryptocurrencies, into workplace retirement plans.
Assessing the Risks and Rewards of Crypto Investments
Financial experts remain divided on the suitability of cryptocurrencies for retirement portfolios, though they generally agree that there are inherent risks. Jerry Schlichter, founding partner of Schlichter Bogard, which specializes in litigation regarding excessive 401(k) fees, emphasized the importance of having a secure retirement plan. He cautioned that investments in emerging fields like cryptocurrency and private equity can carry significant risks for investors.
The skepticism from financial professionals regarding cryptocurrencies is primarily due to two main factors: the volatile nature of these digital assets and their limited historical performance. Data from iShares reveals that bitcoin, while considered more stable than many lesser-known coins, has been roughly five times more volatile than the overall U.S. stock market in the year ending January 2025. Additionally, bitcoin has experienced drastic declines in previous years, including a 74% drop in 2018 and a 64% decline in 2022. Despite these setbacks, bitcoin outperformed traditional assets like stocks, bonds, gold, and commodities in eight out of the last ten years.
However, past performance is not indicative of future results. This principle applies to all investments, but the absence of a long-term performance record for cryptocurrencies raises concerns for financial advisors. Melissa Caro, a certified financial planner and founder of My Retirement Network, pointed out that traditional retirement strategies are based on extensive historical data, which is lacking for cryptocurrencies.
Strategies for Responsible Crypto Investing
If you, like Schlichter, consider a retirement account primarily as a safeguard for your assets, you might conclude that cryptocurrencies do not belong in your IRA or 401(k). Nonetheless, some financial professionals, who prioritize their clients’ best interests, are becoming more open to the idea of including cryptocurrencies, provided that proper precautions are taken. Joshua Brooks, a certified financial planner and founder of Exponential Advisors, noted that fiduciary responsibility still applies, yet many savvy investors are now viewing bitcoin as a compelling risk-reward proposition.
If you are contemplating adding cryptocurrency to your retirement portfolio, here are some responsible investment strategies to consider.
Know Your Risk Tolerance
According to Thomas Racca, head of the personal finance management team at Navy Federal Credit Union, cryptocurrencies present a substantial opportunity, albeit dependent on individual risk tolerance. Generally, those who can withstand fluctuations in investment value tend to have a higher risk tolerance. This means they might be more inclined to hold onto or even increase their investment in a declining asset rather than panic and sell.
Younger investors with a longer time horizon may not be as concerned about short-term dips, while those nearing retirement might find a 20% decline in their portfolio more alarming. Given the inherent volatility of cryptocurrencies, they are most suitable for investors who possess a strong appetite for risk and a clear understanding of what they are engaging with, Racca advised.
Conduct Thorough Research
Both retirement savers and financial advisors should thoroughly research digital assets before investing or recommending them. Brooks emphasized the necessity of having a well-founded rationale based on research for any investment decision. Whether you are drawn to bitcoin for its potential as an alternative currency or prefer ether for its capabilities in smart contracts, it is crucial to have a long-term investment thesis that you can periodically evaluate. Otherwise, you may find yourself relying solely on hope for continued growth.
Avoid Overextending Your Investments
Even if you are confident in a particular cryptocurrency’s long-term prospects, the asset class’s lack of historical data suggests that even the most steadfast investors should proceed with caution, according to Caro. She remarked that the limited information available complicates investment decisions, emphasizing that prudent retirement planning is essential. Financial planners typically recommend that investors allocate only a small portion of their portfolios to high-risk assets like cryptocurrency. This strategy aims to ensure that significant downturns in that portion do not jeopardize long-term financial goals.
Depending on individual risk tolerance, investment horizon, and other income sources, Brooks recommends a maximum allocation of 5% to 15% in cryptocurrencies, stressing the importance of not investing more than one can afford to lose entirely.
