Crypto can arrive on your 401(k). Here’s what to know now | Smart Change: Personal Finances

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Fidelity Investments announced on Tuesday that it will offer 401(k) investors access to Bitcoin as an investment choice in their retirement accounts. This is big news because Fidelity is a legacy investment brand and cryptocurrencies have been pretty much on the fringes of the investment world – until now.

Fidelity says it is the first major pension plan sponsor to announce the Bitcoin Investments offering.

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In recent years, the knee-jerk reaction of many financial advisors has been to caution clients against crypto investments. It’s “too volatile”. Has no “intrinsic value.” It’s a “Ponzi scheme”, many have said.

Let’s face the facts: the blockchain technology that underpins cryptos isn’t going away any time soon. But let’s get past the noise and consider whether Bitcoin and its brethren could fit into your investment plan.

Your employer will make the first choice

First, the news from Fidelity will not mean Bitcoin will immediately appear on your 401(k) plan’s investment menu. Fidelity is still “building its digital asset platform,” according to a press release, and the bitcoin option won’t be available in its 401(k) plans until later this year.

Beyond that, employers will need to approve crypto investments in the plans they provide to their staff. And because of their fiduciary duty – to place the needs of plan members above all else – they may be reluctant to provide immediate access. Many will likely take a wait-and-see attitude before offering crypto as part of their retirement plans.

One reason for that: Last month, the US Department of Labor urged plan sponsors to exercise “extreme caution” before offering cryptocurrency investments in 401(k) plans.

“Fiduciaries must act solely in the financial interests of plan participants and maintain a rigorous standard of professional care. Courts have commonly characterized these duties of care and loyalty as “the highest known by law.” Trustees who breach such obligations shall be personally liable for any loss suffered by the scheme resulting from such breach,” the department said in a special compliance statement in March.

That’s more than enough to eliminate a bladder leak for most employers.

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Take a bowel test

But let’s say a bitcoin investment option appears in your 401(k) one day. Or you want to put some in your IRA or just an old regular investment account.

You’re probably expecting some sort of grim warning, right? Like I could talk you out of it or something.

No. I have invested in bitcoin before. I don’t have any now, and there’s a pretty interesting story behind it. And this is not a frightening loss that I suffered. Remind me to tell you about it someday.

The thing I will say is how does it feel to see your savings account I worked for that money suffer a sudden and massive loss? Are you one of those “it will bounce back one day” investors? Or are you more likely to think, “Dang! That account was worth a fortune six months ago – I could have bought a house with the money!”

Mark Cuban can ignore a $200,000 loss on a cryptocurrency, but you know: billionaire.

Consider the last 12 months

Let’s say you bought a whole bitcoin a year ago. And to put it simply, you paid $50,000 for it. (I bought when a bitcoin was $2,500 a few years ago and thought it was too rich. Feel me?)

A year later, that Bitcoin alone is worth around $40,000. You have lost $10,000. Is it making a knot in your stomach, or is it okay?

And in that year alone, from the end of April 2021 until today, it reached around $67,500. Now, does that look like a loss of $10,000 or a loss of $27,500?

Of course, that’s hypothetical, but if you can put yourself in that situation and it’s okay with you, then maybe a taste of crypto investing is something you can stomach. In a retirement account, it can be little more than a little sweetener to your core investments.

Or maybe the stock market gives you enough thrills.

Disclosure: The author held no position in the above investments at the time of initial publication.

Hal M. Bundrick, CFP® writes for NerdWallet. Email: Twitter: @halmbundrick.

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