Should Crypto and NFTs Be Part of Your Retirement Plan?
Digital assets like NFTs and cryptocurrencies have constantly been in the headlines lately. An NFT-based artwork recently sold at Christie’s for a whopping $69.34 million. And in May, analysts declared that crypto assets’ total market value was almost on par with gold’s.
Given the meteoric rise of these relatively new assets, is it time to make them part of your retirement plan? GOBankingRates spoke to Rob Stevens, retirement income specialist at TIAA, to get his take on whether or not these digital assets should be incorporated into your retirement portfolio.
Cryptocurrency Is Too Speculative To Bank Your Retirement On
This might not be the answer you want to hear, but you should think twice before adding Bitcoin or Ethereum to your retirement plan.
“For most plan participants, their goal with investing is to replace a portion of their paycheck when they retire. So, this is your ‘serious’ money rather than speculative money,” Stevens said. “We consider cryptocurrencies speculative rather than an investment that can be counted on to meet expenses and liabilities in retirement.”
Beyond Bitcoin: Looking at Some Crypto Financial Jargon
As Stevens notes, cryptocurrencies are extremely volatile.
“For example, between 2017 and 2019, the price of Bitcoin went from $1,000 to $17,000 and then declined to $3,000,” he said. “In April, Bitcoin declined in price by over 50% based on negative social media comments by celebrities and a crypto ban by China. Based on a recent skit performed on late-night television, one particular cryptocurrency lost one-third of its value overnight. Due to the speculative nature, financial analysts may be unable to model the risk and performance attributes of cryptocurrencies within an overall portfolio.”
Retirement investments can have some volatility, though they should be able to be modeled and tracked. For example, a large-cap stock fund may be volatile, but its volatility can be compared to the overall market.
“A large-cap stock fund’s long-term performance will depend on fundamentals that can be tracked, such as cash flow from operations, earnings per share and price/earnings ratio,” Stevens said.
If you do want to buy cryptocurrency, you should only invest as much as you can afford to lose — so, it should not be a part of your retirement plan.
“A plan participant who does want to own a cryptocurrency should understand it is speculative and use funds they are not counting on to fund retirement, such as money from a bonus, money allocated for a hobby or ‘going to Vegas’ money,” Stevens said.
NFTs Are Also Too Speculative for Your Retirement Plan
“Similar to artwork, the ability to profit from NFTs (non-fungible tokens) is based on the eye of the beholder,” Stevens said. “It is difficult to know if a digital picture or a video of a famous actor or athlete will be worth more than you paid for it to someone else in the future.”
Because the future value of NFTs is so unpredictable, you should not buy one hoping to be able to retire on its earnings down the line.
“Again, like cryptocurrencies, NFTs are speculative, and therefore for most plan participants, NFTs should not be considered part of a retirement portfolio,” Stevens said. “A better approach may be to treat the purchase of NFTs like a hobby, such as a baseball card or stamp collection. In other words, use money budgeted for a hobby rather than as an investment that will fund your expenses in retirement.”
Take a Look: The 10 Wildest Things Selling as NFTs
Planning To Retire on Income From Crypto or NFTs Is Extremely Risky
Even the most risk-tolerant investor should not plan to retire based on the acquisition of these digital assets. Crypto, in particular, comes with numerous unique risks.
“In addition to the volatility, lack of long-term track record and government risk, there are very few businesses that accept cryptocurrencies as payment,” Stevens said. “The inability to use these cryptocurrencies as an exchange for goods and services may make them fairly illiquid if they can only be exchanged for another currency such as the dollar.”
In addition, it’s likely that some of the cryptocurrencies available now will be obsolete by the time you’re ready to retire.
“Can all of these cryptocurrencies survive, or will some speculators get caught with the ‘wrong’ cryptocurrency and lose their principle?” Stevens said.
With NFTs, the value can fluctuate greatly over the course of your pre-retirement life, putting you at risk when you’re ready to retire.
“Unlike the price of a particular stock, there is no consensus regarding the value of an NFT,” Stevens said. “Like holding a piece of art, there is significant risk in relying on one person to perceive a digital picture or video that you hold is worth more than you paid for it, and be willing to pay you more for it.”
Consider Other Alternative Assets Instead
Just because you should not include crypto and NFTs in your retirement portfolio doesn’t mean you need to rely entirely on stocks and bonds. There are other alternative assets that are less speculative in nature that can be a beneficial addition to your retirement investments. Stevens recommends direct real estate funds.
“Direct real estate is an alternative asset class that can help diversify a retirement plan,” he said. “The owner of a direct real estate fund receives income based on commercial real estate owned by the fund. The fund adds diversification to the portfolio because it will have different investment characteristics than the equities and fixed income that typically make up the majority of holdings in a retirement plan or IRA.”
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