Everyone should be free to squander their money, but not out of their 401(k).
Cryptocurrencies are the exact opposite of a conservative investment: They are volatile, have little practical use other than speculation and crime, are often lost or stolen, and lack real-world cash flows as a basis. basis for the value of stocks and bonds.
Therefore, it goes without saying that they have no place in a retirement savings plan. Unfortunately, it seems to require speaking.
A growing number of financial institutions are looking to include cryptocurrency in employer-sponsored 401(k) plans, in which employees set aside pre-tax earnings for retirement — and as of May. 12, has about $11 trillion in assets. Last year, plan provider ForUsAll announced a partnership with Coinbase that allows employees to put up to 5% of their accounts in crypto through the so-called brokerage window. Earlier this year, Fidelity Investments, among the country’s largest 401(k) providers, said it would soon allow participants to invest up to 20% in Bitcoin, if employers choose the option. . MicroStrategy CEO Michael Saylor, an outspoken Bitcoin advocate, immediately said he would join.
Advocates offer many justifications for this erroneous idea. They say Americans deserve more choice, citing surveys that show millennials especially tend to see crypto as a desirable investment. They say that digital assets can diversify a certain portfolio because their price movements are out of sync with other markets. They emphasize that proper financial education can help people understand the risks.
Please do not. People have trouble navigating the US retirement savings system – and saving only enough for old age – without an extra option that even professional investors struggle to grasp. start. Diversification argument is best for speculation: Cryptocurrencies have a limited track record, and Bitcoin has recently plunged even further than other markets, down more than 50% from its November 2021 peak Not to mention the technical difficulties like getting a reliable price and securing safe custody in a largely unregulated area.
To their credit, managers don’t buy ideas. The Department of Labor, which oversees 401(k) plans, has issued guidance explicitly reminding employers of their fiduciary obligations to participants People should be free to splurge. their money, but don’t waste it in their 401(k). and warned that the inclusion of cryptocurrencies among investment options would call for investigation. For the most part, companies appear to be quite ready to comply: In a recent poll, less than 2% of 401(k) plan sponsors said they were considering adding crypto. as an investment option.
Still, the industry and its supporters keep trying. For example, Republicans of Congress have introduced legislation that prohibits the Department of Labor from restricting 401(k) investment options, opening the way for cryptocurrencies and more. If legislators had a little bit of responsibility, they would let such initiatives die quietly. Otherwise, one has to expect the employer to keep the relationship.
Of course, people should be free to invest their money when they want – outside of their tax-advantaged retirement accounts. One day, cryptocurrencies may become something more than a purely speculative instrument. It’s nowhere near now.