Fidelity to Allow Bitcoin in Retirement Accounts - Adviser Investments

Fidelity to Allow Bitcoin in Retirement Accounts

April 27, 2022

Fidelity announced it will allow 401(k) plans on its platform to include bitcoin. Assuming the offering comes to fruition, the move is likely to further crypto’s efforts to become mainstream.

The Boston-based fund firm is launching a new Digital Assets Account to allow 401(k) plan participants to hold bitcoin. The account will charge a fee of between 0.75% and 0.90% of assets, and it will be fully rolled out by midyear. Plan sponsors must elect to include the option as part of their plans, and Fidelity won’t allow assets in the account to exceed 20% of the total plan amount, though that cap could change.

Fidelity said the move was prompted by inquiries from plan sponsors who wanted to include cryptocurrencies among their offerings. But the new account may run afoul of regulators. Earlier this year, the Labor Department issued a warning that plan sponsors must choose “prudent” options for their plans, strongly hinting that adding assets as volatile as bitcoin would not be in compliance with that duty.

Fidelity has been a strong proponent of bitcoin for more than five years, with CEO Abigail Johnson dabbling in mining herself. The firm attempted to launch a bitcoin ETF last year (and was denied by the SEC) and earlier this year announced plans to launch an ETF that tracks firms in the crypto and digital payments sectors.

Will businesses jump to add crypto as an option in their retirement plans? For now, business analytics software provider MicroStrategy was the first to say yes, it will. We’ll be watching to see if other employers follow suit.

Time to Retire the 4% Rule?

Pent-up consumer demand created a glide path for inflation as pandemic lockdowns waned and the global economy opened up. Now, with oil prices spiking and new COVID-19 clampdowns in China squeezing supply chains, inflation seems set to stick around. Does this signal a reset for retirement spending? Is it time to retire the 4% rule?

Financial planner Bill Bengen seems to think so. He came up with the catchy rule of thumb in 1994 after examining stock and bond returns dating back to 1926. According to the maxim, if you spend 4% of your savings each year in retirement, adjusting annually for inflation, you can keep your nest egg gestating.

But today’s conditions may be unprecedented. Inflation is high, bond yields are historically low and stocks are pricey (the S&P 500’s price-to-earnings ratio is 21.33 today—down from 35.96 at the beginning of 2021 but well over its historic average of 15.97). Bengen, these days a retiree himself, told The Wall Street Journal he plans to do a little belt-tightening.

Should you follow his example? It depends. At Adviser Investments, our financial planning team thinks the 4% rule can provide useful food for thought when you’re trying to figure out how much you should save for retirement. But the results of the 4% guideline should be compared with those of other approaches.

As for how much you can afford to spend in retirement? That deserves a more nuanced answer than one rule of thumb can provide. It requires full-fledged financial planning that factors in your income, expenses and portfolio to determine what withdrawal rate is the best for you. And be prepared to revisit your financial plan when circumstances change. For our own clients, we stress-test plans with higher-than-normal inflation rates for longer time periods to determine how it impacts circumstances for different individuals. If you have questions about your retirement spending level, don’t hesitate to reach out. We’re happy to help.

Chart of the Week: Is It Time to Be Greedy?

time to be bullish stocks
Note: Chart shows average performance for the S&P 500 index (excluding reinvested dividends) over the periods and conditions indicated in the chart based on eight-week average AAII sentiment survey responses. Sources: American Association of Individual Investors, Adviser Investments.

Director of Research Jeff DeMaso:

Warren Buffett of Berkshire Hathaway fame tells us to be fearful when others are greedy and greedy when others are fearful. If that’s the case, it’s time to be greedy!

Each week for the last 35 years or so, the American Association of Individual Investors (AAII) has been asking its members whether they are bullish, neutral or bearish on the stock market over the next six months. Last week, fewer than 16% of respondents were bullish. That’s the lowest read since 1992! (This week, the bullish camp swelled a smidge, to 19%, which is still historically very low.) Fewer investors are bullish today than during the COVID-19 lockdowns, the global financial crisis or the bursting of the tech bubble.

In an effort to reduce the hyperbole—and to take some of the noise out of this survey—I like to look at the broader trend rather than week-to-week gyrations. Over the past two months, using an eight-week average of the percentage of bullish respondents, one-quarter of respondents expressed bullishness. This isn’t as extreme as the recent weekly figures, but it still reflects an unusually low level of bullish responses. (For you statisticians, the percent of bullish responses is more than one standard deviation below normal.) This tells me that investors are fearful.

In the past, when bulls have been this rare, stocks have gone on to deliver better-than-average returns. Since AAII began surveying its members, the S&P 500 (price only) has gained an average of 9.9% in all 12-month periods. However, if you look at the 12 months after bullish responses dried up (defined as the eight-week average falling one standard deviation or more below normal), the S&P gained 16.9% on average. And if you look at the opposite scenario, when a large number of respondents were bullish, the S&P went on to gain just 2.6% on average over the next 12 months.

Maybe Uncle Warren is on to something.

One final stat, going back to that weekly survey with just 16% bullish respondents: Until now, there have only been 33 weeks in AAII history (which covers more than 1,800 weeks) when fewer than 20% of the respondents were bullish. On those 33 occasions, stocks went on to gain 19.5% (on average) over the following year. While it might be uncomfortable to hold your stocks today, history tells us that a little short-term discomfort can be rewarding.

Podcast: How Early Can You Retire?

Packing it in at 65 with a gold watch was once the stereotypical model for retirement. But times have changed, career paths have changed, and for a new generation, retirement planning is changing too. In our most recent podcast, Andrew Busa and Sophie Benander discuss the dream of achieving financial independence and retiring early—aka FIRE, as it’s known to its devotees—and examine the methods and pitfalls of the FIRE approach, including:

  • Differentiating between Luxury FIRE, Lean FIRE and Barista FIRE
  • Separating financial independence from financial freedom
  • Structuring your savings to allow for early retirement

Whether or not you’d like to follow the FIRE-y path, the approach has lessons for us all on how to live more comfortably in retirement. Listen now to learn more!

Adviser Investments’ Today’s Market Takeaways

In Today’s Market Takeaways, members of our investment team provide timely videos that clearly and concisely explain what we’re seeing in the markets.

Recently, Vice President Steve Johnson offered his thoughts on how to prevent whipsaw fatigue, while Senior Research Analyst Liz Laprade revealed how new lockdowns in China could impact markets far and wide.

We hope you find these episodes engaging and accessible, and please let us know if there are any topics you’d like us to address by sending an email to info@adviserinvestments.com!

About Adviser Investments

Adviser Investments is a full-service wealth management firm, offering investment managementfinancial and tax planningmanaged individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994, and have nearly 4,000 clients across the country and over $7 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. Our minimum account size is $350,000. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.


Disclaimer: This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Our statements and opinions are subject to change at any time without notice and should be considered only as part of a diversified portfolio. Mutual funds and exchange-traded funds mentioned herein are not necessarily held in client portfolios. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

You may request a free copy of the firm’s Form ADV Part 2A, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

The Adviser You Can Talk To Podcast is a registered trademark of Adviser Investments, LLC.

Figures related to number of clients and assets under management are as of December 31, 2021.

For a summary of Adviser Investments’ advisory services and fiduciary responsibilities to our clients, please review our Form CRS here.

© 2022 Adviser Investments, LLC. All Rights Reserved.

Adviser Investments' logo is a registered trademark of Adviser Investments, LLC.