Crypto: Making a Play for Your 401(k)    

Jeffrey DeMaso

Portfolio Manager

This week’s reader question:  Does 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) plansA 401(k) plan is a retirement account that a company sets up on behalf of its employees. Both the participant and the employer can contribute to the account. There are two types of 401(k)s, traditional and Roth. Income invested in traditional 401(k)s isn’t taxed while it’s invested, but is taxed when it’s withdrawn. Income invested in a Roth 401(k) is taxed before it’s invested, but no tax is paid when it is withdrawn.. 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 stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. 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. 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.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., 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. 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.