Don’t bet your 401 (k) on Bitcoin

Fidelity announced on Tuesday Workers will begin to invest up to 20% of their 401 (k) savings and contributions directly into Bitcoin. This makes Fidelity the first company in the financial services industry to allow this service without going through another intermediary window, bringing us to a new frontier in retirement savings plans. But it’s all a new frontier …good Frontier?

Last month, the U.S. Department of Labor Issue a statement Warn people to invest retirement funds in volatile digital currencies. They explain: “The retirement savings of American workers and their families represent years of effort and sacrifice … but in this early stage of cryptocurrency history, the U.S. Department of Labor has serious concerns. [retirement] A plan decision to expose participants to direct investment in cryptocurrencies. “

On the surface, the appeal of investing a portion of a 401 (k) in a cryptocurrency is simple. In other words, you can make a lot of money in a short period of time. In fact, the success of crypto companies depends on this attraction. If you don’t buy in now, you’ll be left behind. They throw you A-list celebrities like LeBron James and Matt Damon and tell you to board as the train is about to leave the station. They are spending a lot of money to spread this message. At least $ 26 million in Super Bowl ads..

What is not conveniently included in their marketing is the risk that you are investing in cryptocurrencies. What’s the flip side of making a lot of money in a short period of time? I’ve lost a lot of money in a short period of time. The Ministry of Labor has explained four reasons why cryptocurrencies pose a risk to your retirement savings:

• Evaluation concerns. Financial experts have fundamental disagreements and concerns about how to value cryptocurrencies. These concerns are exacerbated by the fact that cryptocurrencies are not usually subject to the same reporting and data integrity requirements that apply to more traditional investment products. Fraudsters used misleading information to soar the price of cryptocurrencies and sell their holdings for profit before the currency’s value declined.
• Obstacles to making informed decisions. These investments can easily attract investments from inexperienced plan participants who expect high returns and are less aware of the risks they pose. It can be very difficult for the average investor to distinguish between facts and hype. If the trustee includes a cryptocurrency option in the 401 (k) plan menu, inform participants that a knowledgeable investment expert has approved it as a wise option. This can mislead participants about the risks and cause significant losses.
• Prices can change quickly and dramatically. Cryptocurrency prices are very volatile. For example, in just one day last December, Bitcoin prices have fallen by more than 17%. These major fluctuations can leave participants vulnerable to significant losses.
• Evolving regulatory environment.. Laws and rules are evolving rapidly. For example, the president’s recent presidential directive directs federal agencies to study risk and policy approaches to digital assets, including cryptocurrencies. Changes in the United States and around the world can affect existing regulatory frameworks.

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I’m not here to tell you not to invest in cryptocurrencies at all. You are an adult, it’s your money, do what you want to do. “Volatility” is usually a friendly reminder that it’s not related to long-term investments. As long as cryptocurrencies still exist in the less regulated markets, the safest bet is to avoid them when spending money that you can’t afford to lose.