Just a few years ago, the idea of including cryptocurrencies as part of a retirement investment strategy would have been unthinkable. But now that Wall Street has embraced the idea of cryptocurrencies as a standalone asset class, the situation appears to be changing. This is especially true for younger investors, who seem much more willing to take on additional risks if it means the chance to retire early.
From my perspective, there are still only two cryptocurrencies that make sense when it comes to saving for retirement: bitcoin (CRYPT: BTC) and Ethereum (CRYPT: ETH). It is impossible to ignore the returns they have generated over the last decade. And new investment products are emerging that could make it much easier to add to a traditional retirement portfolio. Let's take a closer look.
1.Bitcoin
The obvious cryptocurrency investment option is bitcoin, which has an incredible track record of outperforming the broader market. From 2011 to 2021, for example, Bitcoin was the world's top-performing asset, and it wasn't even close. Bitcoin generated annualized returns of 230% annually. The next best asset class, technology stocks, returned only 20% annually. While that kind of performance will be difficult to replicate in the future, Bitcoin generated returns of 150% last year and is up 60% through 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 skyrocket to $1 million by 2030. If your retirement horizon is 10, 20, or even 30 years away, heaven is heaven. limit on how much higher Bitcoin could go.
There is one more factor that makes Bitcoin particularly attractive from a retirement planning perspective: the launch of new detect Bitcoin ETF in January. Before this year, using cryptocurrency to save for retirement was practically a DIY 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 the current thinking is that Bitcoin ETFs will start to appear more and more as options in retirement savings plans.
2. Ethereum
Like Bitcoin, Ethereum has generated enormous returns over the last decade. When Ethereum 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 good news here is that Ethereum has a compelling long-term investment thesis. It has a dominant role in almost all niches of the blockchain world, as well as in the more diversified blockchain ecosystem. Even better, Ethereum's much-hyped technical transformation ("The Merge") in 2022 laid the groundwork for the next big stage of growth.
And, like Bitcoin, Ethereum will soon have its own ETFs. In late May, the SEC approved Ethereum spot ETFs. Investment firms still must file some final paperwork with the SEC before new ETFs can begin trading. But once they do, they could eventually become valuable tools for retirement planning.
Do Cryptocurrencies Belong in Your Retirement Portfolio?
It's true that there are several drawbacks to adding cryptocurrencies as part of your retirement portfolio. The most important thing is the question of volatility. Yes, Bitcoin and Ethereum have generated incredible returns over the last decade. But they have also had very bad years in which they lost more than half of their value. That's the last thing you want in a retirement asset.
With this in mind, the most prudent advice is to allocate only a small amount of your retirement portfolio to cryptocurrencies. You will gain the diversification benefits of cryptocurrencies as a unique asset class, but minimize the risks of a potential crypto crisis. And, to further minimize risk, you should probably focus on using the new spot ETFs for Bitcoin and Ethereum instead of trading cryptocurrencies directly.
But here's the thing: If you're quickly approaching retirement age or are way behind on your retirement savings needs, adding just a small amount of cryptocurrency to your portfolio could make a big difference. As long as you take a long-term perspective and are aware of the risks involved in cryptocurrencies, Bitcoin and Ethereum could help you retire in style. And potentially even a few years ahead of schedule.
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Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool holds 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
