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Key Takeaways
- Bitcoin is not recommended as a primary source of retirement income because its past growth may not be sustainable over the long term, and it is considered a speculative investment.
- High volatility and constant price fluctuations make investing in Bitcoin risky, similar to a gamble; sudden price drops can lead to heavy losses.
- For retirement, investors need long-term investments that offer steady, if slow, growth, as cryptocurrency has no guaranteed rate of return and could leave one broke if too much is invested.
- Bitcoin is best considered for short-term speculation and should only be a small percentage of a diversified portfolio, ideally when one is debt-free and has other financial goals already secured.
Are you tempted to invest your retirement savings in digital currency? Do you think Bitcoin could be your primary source of retirement income?
Bitcoin and other digital currencies seem to have become all the rage as an investment option these days. In addition to growing at an incredible rate over the last few years, the cryptocurrency has also become widely accepted in many areas, which only helps to make it more popular.
What are the Reasons Why Bitcoin Shouldn’t Play a Significant Role in your Retirement Planning?
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Potential Growth Isn’t Actual Growth
Many financial experts believe that the past and current growth of cryptocurrency is not sustainable over the long term. Treat these as you would any speculative investment, instead of looking at potential value alone. Like other speculative investments, it’s equally possible for the value to rise tremendously or drop to a fraction of the price at which you bought it.
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High Volatility Makes for High Risk
Bitcoin did extremely well in 2016 and 2017, but the sudden drop in prices at the end of 2017 left many regretting their decision to invest in it. At a time when the digital currency would double in value within a week, a number of small investors decided to jump on the bandwagon and put their savings at risk. Buying Bitcoin at a high price meant heavy losses when prices fell.
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Constant Fluctuations Are a Gamble
Most Bitcoin success stories came from investors who bought the cryptocurrency when it cost a few hundred dollars, or sold it when the process was its peak. There’s no way to predict when prices will rise or fall, so investing in digital currency is a lot like buying a lottery ticket. There’s little harm in spending ‘spare change’ on it, but avoid putting large sums at risk.
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You Need Steady Gains for Retirement
Cryptocurrency has no guaranteed rate of return. Yes, it might make you a millionaire, but it might also leave you broke, especially if you put all your money in it. It’s a good option for short-term speculation, but only as a small percentage of a diversified portfolio. For retirement income, you need smart long-term investments that offer steady, if slow, growth.
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Buy When You’re Financially Ready
If you’re considering Bitcoin or other speculative investments, you need to offset the risk by making sure your finances are in control. Ideally, you should invest in cryptocurrency when you’re free of debt, have good cash flow and a decent emergency fund, and have already set up a source of income for college, retirement and other financial goals.
Investing in Bitcoin works best if you already have a healthy mix of short-term and long-term assets in your portfolio, and are investing for retirement in an IRA or other tax-advantaged plan.
