Author: Michelle Goldfield
With the rise of digital currencies and decentralized blockchain technology, many investors are turning to cryptocurrency as a secure way to invest for retirement. Cryptocurrency has many benefits for investors, from the potential of high returns on investment to its lack of government regulation and political interference.
Investing in cryptocurrency can be complex, but understanding the basics can help give you the confidence to make informed decisions about where to invest your hard-earned money.
A Class of Assets Called Cryptocurrency
A cryptocurrency is a virtual form of money secured by cryptography. As cryptocurrencies are decentralized, distribution and transactions are not under the jurisdiction of financial institutions.
Anyone can purchase and trade cryptocurrencies on exchanges. People can also use cryptocurrencies to pay for goods and services in some marketplaces.
In other words, there is widespread interest in cryptocurrencies. However, the dramatic fall from grace shows that cryptocurrencies remain an unsafe investment, despite the amazing run-up in 2021.
Everyone knows that retirees should invest in assets that provide income since, once they are not actively working.
Instead of income, crypto investors focus on capital growth. If retirees are compelled to sell assets for less than what they originally purchased to cover living needs, this can be tremendously damaging to their portfolios.
Cryptocurrency for Retirement: Pros and Cons
There aren’t many benefits of investing in cryptocurrencies for retirement from a traditional investing perspective, except perhaps it’s as a small part of a broader diversification strategy.
In addition to the volatility risk, crypto has considerable tax reporting requirements. There are some typical tax situations while investing in cryptocurrencies:
- Taxable transactions and capital gains pain: Every successful sale results in a short-term or long-term capital gain, which necessitates payment of taxes.
- Gains taxes result in fees to the IRS, which reduces the amount of capital you have available for future investments.
- Each buy, sell, and exchange must be accurately tracked, taking cost basis into account.
Other Asset Classes Possible
There are more stable alternative asset classes for investors searching for different ways to profit from the portfolio with much less risk.
- Hedge funds are capital pools that are controlled by financial experts that use a variety of investing strategies.
- Private equity refers to money invested in privately owned businesses. Typically, rich, accredited investors receive this type of funding.
- Real estate covers financial investments in real estate or mortgages.
- Commodities are investments in raw materials like agricultural goods, oil, or precious metals.
Each of these asset classes has different risks and returns. Expanding your investments across several asset classes helps reduce the impact of any investment doing poorly.
Cryptocurrency has become a popular investment option for many investors looking to secure retirement funds. Investing in cryptocurrency can be a wise decision with the potential for high returns, lack of government regulation, and decentralized blockchain technology. However, it is important to understand the basics before making any investments. By researching and consulting with an experienced financial advisor, you will have the knowledge and confidence to make smart decisions surrounding your retirement funds.