How people spend, save, and invest their money is constantly evolving. As mobile banking, e-commerce, and online payments become more prominent, we are steadily moving towards a cashless society.
A relatively recent entrant to the financial world is cryptocurrency. Many people have struggled with this concept and chosen to avoid it. However, others have been quick to embrace cryptocurrencies and have been richly rewarded.
Indeed, many cryptocurrency experts are now suggesting this new form of currency could be an excellent long-term investment. This article examines whether cryptocurrencies are a good investment opportunity for retirement.
What is cryptocurrency?
The term “currency” confuses many people when discussing cryptocurrencies. People have become used to currencies such as the Euro, Yen, Dollar, and Pound Sterling. However, a currency is anything a seller and buyer agree to use as a means of transaction. The other part of cryptocurrency is “crypto.” Cryptography is the practice of securing communications using codes.
Cryptocurrencies have no requirement for banks, governments, or other centralised authorities. Instead, they operate through a network of institutions known as a distributed ledger. This ledger is effectively a database of users who can witness cryptocurrency transactions. These transactions are called the blockchain, and this may require more explanation.
What is the blockchain?
The blockchain enables you to send and receive money from another institution – make transactions. The blockchain’s security comes from all others within the blockchain witnessing the transactions. Consequently, blockchain transactions are secure, fast, flexible, and have low fees.
Two other attractions of cryptocurrencies such as Bitcoin are their non-physical nature and divisibility. These increase its utility for significant global transactions as government interference is minimised.
Are cryptocurrencies a good retirement investment?
By now, you should understand cryptocurrencies a bit more. Now, let’s consider if they are a good retirement investment.
Cryptocurrencies are certainly capturing big companies’ attention. Indeed, Visa and Amazon are two corporate giants investigating how they can incorporate these new currencies into their daily operations. Undoubtedly, cryptocurrencies will become a more common form of payment as we move towards a cashless society.
Something else driving the popularity of cryptocurrencies is some people’s massive fortunes. Although some have become incredibly wealthy through cryptocurrency investments, it is not the case for all.
Investing in cryptocurrencies is risky. Of course, you might join the few who have made millions. However, there is also the risk of suffering catastrophic losses.
How much risk can you tolerate?
The promise of swift and enormous returns can be alluring to young or inexperienced investors. The crucial aspect to consider is how much risk you can tolerate.
Cryptocurrencies are high-risk investments, and not many others experience the cryptocurrency market’s volatility. As such, cryptocurrencies are not a good match for the stability required to grow your retirement pot over the long term. For this, more traditional retirement investments are a better fit.
Traditional retirement investments.
Few people outside the financial sector have a good understanding of how investments work. Consequently, financial advisors and fund managers tend to be the people responsible for ensuring your funds grow as planned. Speaking to a financial advisor makes sense if you are looking for some guidance, check out Portafina.
Of course, nothing is guaranteed. Even these experts can get caught by global events causing rapid economic or individual market shifts. Therefore, you can never predict exactly how your retirement fund will mature.
However, you can mitigate these risks by setting boundaries for your investments. For instance, whether you want low, medium, or high-risk investments within your portfolio.
Most retirement funds have a mixture of these three categories. Therefore, they have an opportunity of making significant gains from their high-risk investments while maintaining a safety element through their low and medium-risk selection.
Cryptocurrencies fall into the Very High-risk category due to their wild and unpredictable fluctuations. Even traditional high-risk investments are considered more stable than cryptocurrencies.
Of course, the economy and financial markets will fluctuate over the long term. However, the decades you invest for your retirement lessen any losses and provide ample opportunity for growth.
Traditional retirement investments include established FTSE companies, commodities, precious metals, property, emerging tech, and others. A diverse mixture of these investments should provide a stable basis for your retirement funds.
Should you consider cryptocurrencies as a retirement investment?
In a word, No! Cryptocurrency markets have yet to be regulated. Combine this with their volatility, and you should understand that cryptocurrencies are too risky to be considered a good retirement investment. The promise of incredible wealth may be alluring, but another outcome is more likely – losing your retirement savings.
Hopefully, this article will have made you aware of the risks investing in cryptocurrencies poses to your retirement funds. You should feel comfortable with how much risk you’re taking with all your investments. Therefore, understand how your retirement funds are being invested, and re-evaluate your investments regularly.