Is Cryptocurrency a Good Retirement Investment?

The world of finance witnesses frequent changes. However, there have been fewer significant changes in recent years than in the development and introduction of cryptocurrencies.

This new technology has arrived at a time when online transactions seem to be taking precedence ahead of those on the High Street. Indeed, society appears to be heading towards a time when physical money could be a thing of the past.

Despite being familiar with e-commerce, remote banking, and cashless transactions, many people find the concept of cryptocurrencies peculiar. However, crypto has proven incredibly profitable for a lucky few.

This being the case, should you consider cryptocurrency as a long-term opportunity? Let’s look at what cryptocurrencies are, how they work, and whether they are a good retirement investment.

What are cryptocurrencies?

Many cannot get their heads around cryptocurrencies because they consider them the way they do any other currency. The massive delta between physical cash and the virtual nature of crypto poses a conundrum for many people.

Of course, we’ve been living with physical money for so long that it is only natural that such a new and different means of exchange provides some scepticism and suspicion. However, these could be alleviated if people understood the true definition of a currency - something that provides a means of exchange between sellers and buyers.

Hopefully, we can make things a bit clearer now. The currency aspect of cryptocurrency relates to being used as a means of exchange. Crypto is the element referring to how the currency is secured through cryptography, the practice of securing communications with code.

Cryptocurrencies operate independently of a bank, government, or other central authority. Instead, they work via a distributed ledger, which is a network of institutions, all of which witness blockchain transactions. 

How does blockchain work?

Blockchain enables you to transfer money to another institution or individual. As mentioned above, every institution within the Blockchain witnesses each transaction, which provides security for cryptocurrencies.

Its lack of central authority makes crypto transactions fast and flexible. Its digital nature means that cryptocurrencies are easily divisible, and transaction fees are low. These features have made crypto popular with many, including frequent travellers and those wanting to move large sums of money without government interference. However, does this make them a good investment for your retirement?

Investing in crypto

Many large companies and corporations are investigating ways to integrate cryptocurrencies into everyday transactions. Such organisations include Visa and Amazon, and no doubt others will follow as we head closer towards a cashless society.

In recent years, reports of massive gains made by early Bitcoin investors have been all over the media. However, there have been many more who have lost money through investing in this new technology. Indeed, gains may have been high, but losses were catastrophic for some.

How much risk will you accept?

The lure of huge returns can seduce people into investing in crypto. However, the crucial aspect of whether you invest comes down to your risk profile and how much you’re willing to accept. Cryptocurrencies are high-risk, something that doesn’t fit with the stability required by your retirement investments.

Traditional retirement investments

In most cases, people do not understand their investments in-depth. Instead, they trust financial professionals to manage their funds for them.

Of course, nothing in the investment world can be guaranteed. Fluctuations in the economy and market volatility make financial outcomes challenging to predict. However, you can protect your investments to a certain degree by establishing boundaries regarding the level of risk you are willing to take.

Some investments fluctuate considerably, and cryptocurrencies are certainly towards the top of this scale. Other investments can be classed as medium risk or low risk. Professional investors generally give you a mix of all three, with the higher-risk investments providing the returns and the littlest ones offering some stability.

Your retirement investments will be long-term, meaning they will experience various economic cycles and market volatility. As your gains get reinvested over a long period, you can hopefully minimise the effect of the losses you suffer while building on your profits.

Traditional retirement investments include established companies, precious metals, currencies, new tech, property, and others. Your investment portfolio’s makeup should depend upon the level of risk you are comfortable with.

Should cryptocurrency be considered in your retirement investment portfolio?

Given the volatility associated with cryptocurrencies and the fact that this market remains unregulated, cryptocurrencies are not suitable as retirement investments.

Of course, all investments involve an element of chance, but the risks associated with crypto are too high for you to consider for your long-term security. No doubt, people will still make fantastic gains, but many will lose their entire investment through crypto. Therefore, you should find other investments for your retirement. If your financial future is important to you, it is highly recommended you engage with a financial advisor (such as Portafina) before making any decisions.

Conclusion 

You should maintain a keen interest in how your money is invested. Always remain within your comfort zone as far as your retirement investments are concerned. Remember, you only have a finite time to invest for retirement, so avoid extremely high-risk investments, including cryptocurrencies.