Crypto in Your Retirement Portfolio: Sexy or Stable?

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As we navigate the complexities of financial planning, especially for retirement, a question that frequently sparks debate is: Does cryptocurrency, specifically Bitcoin, have a place in your retirement portfolio?

From our YouTube channel:

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Understanding Crypto: Currency vs. Store of Value

1. Crypto as a Currency: Originally envisioned as a decentralized currency for frictionless transactions, crypto faces a significant hurdle: volatility. As Struthers illustrates with the coffee shop example, the rapid fluctuation in Bitcoin’s value makes it impractical for everyday use. Imagine selling a coffee for Bitcoin in the morning, only for its value to drop 10% by afternoon! While some stablecoins (especially those backed by fiat currency like the U.S. dollar) show promise for low-cost, cross-border transactions, they still need to prove their resilience under financial stress. For now, the anti-crypto argument on its currency viability still holds, but is showing cracks.
2. While gold’s value is largely historical and based on collective belief, and the S&P 500’s value is underpinned by corporate earnings, Bitcoin’s value is more susceptible to the “whims of people.” This means less predictability, a key concern for retirees.

Crypto in Your Retirement Portfolio: A “Maybe” with Caveats

So, should you put crypto in your retirement account? Struthers’ answer is a cautious “maybe.”

Struthers acknowledges that crypto could offer diversification, similar to a small allocation in gold or other commodities. Where crypto differs from gold is that the upside is arguably much higher. It is far more speculative than gold; therefore, the return potential is higher. However, due to its inherent risks, he suggests limiting any such speculative investment to no more than 3-5%% of your liquid portfolio.

The core question for retirees is not just about potential returns, but predictability. In the decumulation phase of retirement, your primary goal is to generate reliable income and meet inflation-adjusted expenses.

“If you are having to sell something because you are in the decumulation phase, or you simply have RMDs (required minimum distributions), you want something that has, over the longer term, more predictable behavior.” While stocks can experience downturns, historically, they’ve always recovered over time due to their underlying earnings. Crypto, lacking this fundamental earnings basis and historical performance, introduces a higher degree of uncertainty.

The “Parents Test” and Why Predictability Matters More

Would Mark recommend crypto to his parents? “Most likely no,” he states, not because he thinks it lacks value, but because they would “worry too much about it.” If a small allocation of crypto keeps you up at night, and you can achieve your retirement goals without it, then why include it? I have some relatives who, if they understood the risks and possible outcomes, I would 100% recommend they have some exposure to crypto.

For most retirees, the “known route”—diversified, lower-cost, and more predictable assets—is often the better choice. While a little “sexy” in your portfolio can be tempting and even a good thing, “stable” is often the more desirable characteristic when you’re relying on your investments for income. It is like some marriages. A little sexy can be good, but too much, and you lose the main purpose of stability.

Making Informed Decisions

Ultimately, financial planning is about making informed decisions tailored to your unique situation. Don’t get swayed by external noise or what your neighbor is doing. Instead, ask yourself:

• What is the role of this investment in my portfolio?
• What are its risks and potential outcomes?
• Do I need to take on this level of risk to reach my retirement goals?
• If I want this level of risk, can I sleep at night?
• Are there more predictable alternatives that suffice?

For many, choosing the stable, predictable route often leads to a healthier, wealthier, and happier retirement.

If you don’t have a plan and would like to get one, schedule a Discovery Meeting:

To health and wealth!

Mark Struthers, CFA, CFP®, CRC®, RMA®

For current clients looking for a meeting:

This commentary is provided for general information purposes only, should not be construed as investment, tax, or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable, but is not guaranteed.