What to Know Before Adding Crypto to Your Retirement Savings Plan
Date: November 15, 2021

What to Know Before Adding Crypto to Your Retirement Savings Plan

Turn on one of the many financial news networks or search the web for investing news and you are sure to find information (as well as opinions) relating to cryptocurrency. Cryptocurrency value has yet to be wholly defined, largely because it is still evolving.  

Crypto might one day supplant traditional paper money, serving as a digital currency used through smartphones and smartwatches. Crypto is also coveted as a value store. Others insist crypto will continue to progress and change in unforeseen ways, ultimately increasing its value all the more.  


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If you are not yet invested in cryptocurrency, now is the time to consider establishing one or several positions with the guidance of a fee-only CERTIFIED FINANCIAL PLANNER™ Professional. It may make sense to add crypto to a retirement portfolio in certain situations. Every investor is encouraged to perform his or her own due diligence before investing hard-earned money in any nonconventional asset such as crypto.  

Carefully Consider the Addition of Potentially Volatile Cryptocurrency

The best CERTIFIED FINANCIAL PLANNER™ Professional will emphasize the importance of diversifying a retirement portfolio. Investment diversification takes the form of varying levels of risk as well as exposure to a plethora of industries and even different investment vehicles.  

As an example, your financial advisor may recommend allotting no more than 5% of your assets in any particular investment. If you decide to move forward with the addition of crypto to your retirement savings plan, ease your way into your position, gradually building it as you become increasingly familiar with the nuances of crypto.  

Resist the temptation to overexpose your nest egg to the inherent volatility of the crypto market. Crypto has proven more volatile than stocks, real estate, and most other investment vehicles. Limit your initial crypto investment allotment to 5% or less of your retirement savings, spread out that investment across several cryptocurrencies and be patient.  

If you feel a bit uneasy about investing in crypto, you may want to consider offsetting some of the risks by counterbalancing your comparably risky crypto position with another position in a CD, money market account, mutual fund, ETF, or low-risk, high-dividend stock.  

Crypto Might be a Hedge Against Inflation and a Bear Stock Market

Crypto appears to, and possibly may, have somewhat of an inverse relationship with the stock market. Similar to precious metals considered to be “safe havens” amidst market turmoil, crypto has shown a tendency to hold steady and sometimes even increase when the stock market sours. (Past performance is not indicative of future results).

Cryptocurrencies have been known to rapidly ascend, providing gains that outpace inflation. The same cannot be said of CDs, money market accounts, bank savings account rates, and other investment/savings vehicles that often result in a net loss after inflation is factored in. However, crypto has not been around as long as other assets so economists are still attempting to accurately predict future performance amidst an overarching economic contraction or prolonged recession.

Does Crypto Investing Fit Your Unique Financial Situation and Risk Tolerance?

Your fee-only CERTIFIED FINANCIAL PLANNER™ Professional may not advise investing in crypto unless money is already invested in more traditional securities. The best approach to comprehensive financial planning is to carefully consider investing a small percentage of one’s financial nest egg across several investments, including cryptocurrencies, using a buy and hold strategy.  

Only those who have a steady income and those tolerant of risk may want to consider crypto investments. In particular, those who have a longer investing timeline are much more likely to be tolerant of crypto’s inherent elevated risk as there is no rush to withdraw the money for retirement.  

Does the 5% Rule Really Apply to Crypto Investing?

Younger investors who embrace new technology and proudly display an irreverence for convention will understandably gravitate toward cryptocurrencies. There will also be a temptation to invest much more than the recommended 5% maximum of one’s investing dollars into the many different cryptocurrencies.  

A higher allocation of one’s portfolio into crypto should only be considered if the investor is young. Furthermore, investing more than 5% of one’s retirement savings in crypto should only be considered after extensive strategic discussions with a financial advisor who thoroughly understands the idiosyncrasies of crypto investing.

Play the Long Game

Similar to the stock market, investing in crypto is logical when implementing a buy-and-hold strategy. Day trading crypto or stocks is unlikely to generate favorable results, especially if your primary goal is to expand your retirement nest egg without exposing your money to elevated risk. Develop an investment timeline complete with benchmarked goals created during consultations with your financial advisor and you will have a general expectation as to when you can comfortably retire.  

The potential for digital currency to replace traditional tangible currency along with the resulting heightened efficiency makes crypto one of the more intriguing investment opportunities moving forward. If federal governments embrace the blockchain for nationwide digital currencies or if money continues to pour into crypto, the value of your positions may increase in unison.  

A CERTIFIED FINANCIAL PLANNER™ Professional Can Help You Navigate the Crypto Maze 

Even if you are not a strong believer in crypto, there may be an opportunity cost of completely bypassing this emerging digital value store by ignoring it. At Sapiat Asset Management, we can help you review the many different factors that will shape your decision in possibly adding crypt to your retirement savings plan and only move forward when you are comfortable doing so.  

At Sapiat Asset Management, we use a personalized process to identify the financial and retirement planning strategies that meet the needs of our clients. Our knowledge of your financial situation is a big part of the foundation that drives our relationship with you. Contact us today for a complimentary consultation.

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Sapiat Asset Management is a Fee-Only, Independent, Registered Investment Advisor (RIA), specializing in goal-oriented financial planning and investment management for Gen X Individuals & Families, their Businesses, & the Trusts that benefit them and their heirs.

Steve Dick