Crypto: Making a Play for Your 401(k)    

Crypto: Making a Play for Your 401(k)    

May 15, 2022

This week’s reader questionDoes bitcoin belong in my 401(k) portfolio?

This has been a hot topic since Fidelity announced it was queuing up to allow companies to include bitcoin in their 401(k) plans. The Department of Labor—which regulates 401(k) plans—has cast shade on the idea. Nonetheless, company boards are weighing whether bitcoin should be part of their 401(k) lineups. And participants are asking, “Why not buy bitcoin in my retirement account if I can?”

Bitcoin is a bit of a lightning rod right now, so I get the attention. The crypto market has been under considerable pressure this year and (as we said above) the price of bitcoin plunged recently. But this question isn’t really about bitcoin. It’s about including a speculative asset—any speculative asset—as an option in a 401(k). Yes, bitcoin is speculative. It could be a home run or a zero—or both depending on your time frame!

Does it make sense to offer or hold an asset within a 401(k) that arguably has as much chance of going into freefall as it does of going up many multiples? Realistically, some companies already do this by allowing employees to buy their company stock through their 401(k). If you work at, say, a biotech and buy your company stock in your retirement savings plan, is that really very different?

At the individual investor level, it may make sense to have some of your 401(k) funds invested in what is effectively a lottery ticket; it's just a question of how much

At the individual investor level, it may make sense to have some of your 401(k) funds invested in what is effectively a lottery ticket; it’s just a question of how much. Which may be why the Department of Labor is balking at Fidelity’s plan to allow participants to sock as much as 20% of their portfolio into bitcoin.

If you are a bitcoin bull, you are itching for the opportunity to buy the cryptocurrency in a tax-deferred retirement account. And bulls would say that if you don’t want to own bitcoin, no one is making you buy it, so what’s the harm in offering it as an option? Well, the harm is that people may overconcentrate—in their retirement account—in an asset that goes under. Enron, anyone? In that case, many employees who loaded up on Enron stock not only lost their jobs but also took massive hits to their 401(k)s when the company went down.

I’m not saying bitcoin is going to zero. I’m also not saying it’s sure to be a home run. I’m simply saying that you can’t rule either out. So if bitcoin does come to a 401(k) near you, speculate accordingly.

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