“Oh my gosh, what a perfect storm,” said Christine Benz, director of personal finance for Morningstar.
“Markets seem to be worried about a lot of different factors at once,” he said.
Wall Street, dragged down by technology stocks, accumulates heavier losses
But if you’re worried about the stock and bond market, then you’d be crazy about what is happening with bitcoin. The world’s leading cryptocurrency fell to just under $31,000 this week.
That’s a nosedive of more than 50 percent from bitcoin’s record high of nearly $69,000 late last year.
If individual investors are scared into selling, locking in their losses, during the fall in prices of stocks and bonds backed by companies they know and understand, what can we expect from those contemplating adding the most volatile and misunderstood cryptocurrency to the market? your retirement portfolio?
It is one of the questions that two senators ask themselves after fidelity Investments, one of the largest administrators of workplace plans, announced that it will soon allow employers to offer bitcoin in their retirement plans.
In setting a cap, Fidelity said employers would allow employee contributions in crypto up to 20 percent per payroll cycle. Investors can hold up to 20 percent of their 401(k)’s total value in a digital asset account, though employers could reduce the percentage workers can invest in bitcoin.
Right now, I think the threshold is too high. If you’re going to speculate in cryptocurrencies, keep it to around 5 percent of your holdings, some experts I’ve interviewed recommend.
Sen. Elizabeth Warren (D-Mass.) and Sen. Tina Smith (D-Minn.) sent a letter to Fidelity’s CEO. The senators opened their letter by questioning the appropriateness of the company adding bitcoin to its menu of 401(k) investment plans. They are right to be skeptical of an unregulated investment asset.
Suddenly, cryptocurrencies are everywhere except at the cash register
“Bitcoin’s volatility is compounded by its susceptibility to the whims of a handful of influential people,” Warren and Smith wrote. “Elon Musk’s tweets alone have led to bitcoin value fluctuations of up to 8 percent.”
The senators want to know how Fidelity will handle the challenge of educating retirement plan participants so they can make informed investment decisions about bitcoin. Getting people to understand the basics of investing in traditional asset classes is already a big hurdle.
Fidelity said its digital asset account offering would include “safeguards including, but not limited to, excessive trading oversight, investment limits, transparency, market-leading education.”
“As a company with a 75-year history of putting our customers first, Fidelity shares the [Labor Department’s] and the mission of legislators to protect the best interests of retirement savers,” the company said in an emailed statement responding to the letter.
Move over, crypto. A record number of workers are becoming millionaires with their boring 401(k)s and IRAs.
In 2015, a Pew Research Center survey found that while many people had heard of cryptocurrencies, only 1 percent of Americans said they had ever collected, traded, or used bitcoin.
Last year, another Pew survey found that 16 percent of Americans have invested, traded, or used cryptocurrencies. That’s a decent jump, but right now the usefulness of cryptocurrencies is limited to scammers, crime syndicates, and speculators hoping other investors will pay them more than they spent to buy the computer codes.
The blockchain is a digital ledger that keeps track of the cryptocurrency transactions behind bitcoin and its crypto siblings. The technology has enormous potential. But how much do mainstream investors understand about the risks of what for now remains an unconventional asset?
“What I come back to with cryptocurrencies is that we can’t assign a value to them,” Benz said. “We don’t have the same track record that we have for the other major asset classes. We’re just guessing how it might behave and who are the owners and who are the buyers.”
Bitcoin’s ‘Fire of Truth’ Gets Drenched with a Bucket of Water
Cryptocurrency “can be extraordinarily difficult, even for savvy investors, to assess these assets and separate fact from hype,” the Department of Labor wrote in a warning to companies that market cryptocurrency investments for 401(k) plans.
The recent stock market nosedive is a good lesson in the risk of adding cryptocurrency to 401(k)s and similar workplace retirement plans.
“It seems like the claim that it’s kind of a diversifier for stocks is losing a little bit day-to-day because we’re seeing it perform very much in line with riskier stocks,” Benz said.
“When you look at According to the data, it is quite difficult for investors to accumulate assets for retirement using simple asset classes. If we throw really risky and volatile investments into the mix, it’s hard to imagine things getting much better.”