Many People Have Made Vast Fortunes From Crypto. But Are Cryptocurrencies a Good Retirement Investment?
Money and the world of finance have changed throughout history. However, never as much as in recent times. E-Commerce means our spending is increasingly happening online rather than on the High Street.
Indeed, with the introduction of cryptocurrencies, society is heading ever more closely to a cashless economy. However, cryptocurrencies still seem pretty challenging to understand for all but a few savvy investors and financial experts. Therefore, let’s take a closer look at this new form of exchange and assess whether they are a suitable retirement investment.
Most people define a currency as the physical paper money they have used for most of their lives. The vast difference between that and the virtual nature of crypto means many struggle to see how both can perform a similar task.
Perhaps we’ve been using paper money for so long we’ve lost track of what a currency is. Indeed, a currency is anything that’s used as a medium of exchange between buyers and sellers.
The other potentially confusing aspect of cryptocurrencies is the ‘crypto’ part. Crypto is short for cryptography which is the act of securing communications by using codes.
Crypto also differs from paper money because it operates without a central authority, such as the government or central bank. Instead, cryptocurrencies use a database of networked institutions, all of which can witness transactions. The cryptocurrency transactions that take place on this network are called the blockchain.
The blockchain facilitates the transfer of funds from one user to another. Security comes from the transparency provided across all institutions on the network.
The advantages of cryptocurrencies include flexibility, transaction speed, and ease of divisibility. Also, as they have no physical form, they have become popular with global travellers. Furthermore, cryptocurrencies are outside government control, making them attractive to those who want to move large amounts of money across borders without interference.
That being said, are cryptocurrencies a good retirement investment?
Recently, many large corporations, including Visa and Amazon, have started embracing cryptocurrencies for investment and as a means of carrying out transactions. As society heads further towards a cashless economy, more companies are likely to follow suit.
An aspect of cryptocurrencies that has generated a lot of excitement is the massive fortunes some people have made through Bitcoin investments. However, you must understand that cryptocurrencies are incredibly volatile, so investing in them is a gamble.
Therefore, you would be putting your money at considerable risk. Of course, there is a chance you could make incredible gains, but you could also suffer catastrophic losses.
The idea of investing your money where it can return massive gains can prove seductive. That is particularly the case for young or inexperienced investors.
The crucial thing to consider is your appetite for risk. Investing in cryptocurrencies is high-risk, which doesn’t sit well with the stability required for retirement investments.
Most people are unaware of how their funds are invested. Instead, they leave their investments in the hands of professionals such as fund managers or financial advisors. Your funds are more likely to grow with these experts than with your untrained hands.
A financial professional will ensure your funds are invested appropriately according to your investment strategy. Of course, the stock market can be incredibly volatile, so you can never be sure of an exact outcome.
What you can do is opt for investments that are either low, medium, or high risk. Setting boundaries based on risk appetite will allow you to contain potential losses.
Cryptocurrencies sit within the high-risk category of investments. Others are considered more stable and with lower risk. Most financial professionals recommend a mixture of low, medium, and high-risk investments within a portfolio.
By spreading your funds in this way, you can benefit from the potential significant gains of high-risk investments while receiving protection from your lower-risk ones. Remember, retirement investing is a long-term endeavour. Therefore, you will likely witness several economic peaks and troughs during the time your funds remain invested. Any setbacks your experience should be offset by your profits being reinvested.
How you invest your money depends on the level of risk you’re comfortable with. Different investment vehicles offer varying degrees of risk. Traditional retirement investments include commodities, precious metals, forex, tech stocks, and established companies.
The short and most straightforward answer to this question is No. Given their market volatility and unregulated nature, cryptocurrencies carry too much risk for you to consider them a suitable retirement investment.
Of course, all investments carry a certain degree of risk. However, they are nowhere near the same level of volatility as cryptocurrencies. With crypto, losses can occur so rapidly that you could quickly lose a considerable proportion of your funds. Yes, a few have made incredible fortunes from investing in cryptocurrencies, but more have lost everything.
You might not be exactly sure of how your money is being invested for your retirement. However, you should now be aware of the various levels of risk and how you can set boundaries to exploit gains and limit losses. Getting professional and regulated financial advice will help you with planning for your retirement, check out Portafina.
Regarding cryptocurrency as a retirement investment, we can state with plenty of conviction that these are not suitable for your retirement funds. The risk of jeopardising your future in the crypto market is just too high.
