A pension portfolio should of course contain a large number of assets. However, should it include cryptocurrencies?
Traditionally, portfolio diversification offers two main benefits. First, the portfolio contains “uncorrelated” assets so that if some investments are losing, others will remain stable or even rise. Accordingly, investors will avoid the “empty hand” situation should one of their investments collapse.
The real benefit of diversifying a portfolio with cryptocurrencies is to limit the “nothing to lose” situation. If one cryptocurrency fails and goes to zero, other crypto investments can still do well.
According to Bloomberg, crypto insurance is about to seize a “huge opportunity”. A spokesman for Allianz, one of the largest insurance companies in the world, told the news publication that the company was working on a wide range of product options and coverage in this area as cryptocurrencies “daily” become more relevant, important and ubiquitous in the real economy “.
Anjali Jariwala, Certified Financial Planner, says:
“In order to determine how much money can be invested in a riskier asset class, it is important to first assess your own financial situation and, as a priority, raise enough capital for the required pool. You should only consider investing in a riskier asset like cryptocurrencies when there is no other pool to invest in and you still have untapped cash flow. ”
Adding crypto directly to a bond portfolio can be tricky. And with every form of investment there are risks. Therefore, it is necessary to exercise a certain degree of due diligence before dealing intensively with crypto / bitcoin.
Despite historic gains over the past year, the crypto king is still a relatively new asset and can be quite volatile. For example, at the time of writing, BTC is trading at around $ 51,000, up 2% in 24 hours.
Although prices are trading in the green, volatility is still a major concern.
Hence, it is important to consult a financial advisor to make sure you understand the risks of investing, especially when it comes to cryptocurrencies.
Some plans for reference
Investors can retire and even retire early with Bitcoin regardless of the holding value, be it 0.01 or 0.001 BTC.
Here are some real life scenarios with more conservative and relaxed retirement scenarios. The Dollar Cost Average (DCA) is one of the most important metrics for improving the net worth of a portfolio. Renowned investor and analyst Lark Davis has shown how important this is in many ways tweet.
“If you want to get rich with crypto, you need a longer time frame.”
Here the calculations do not take into account inflation, changes in the cost of living, and other variables, such as those used in traditional financial planners’ calculation of retirement benefits. The nice thing about Bitcoin is that it doesn’t have to take these variables into account due to the huge returns it generates.
The next question for Bitcoin retirement planning is how to determine compound interest. Compound interest is the interest earned each year that is added to capital. So the balance is not only growing, but faster and faster. This is one of the most useful concepts in finance.
Assumption: Bitcoin’s compound interest is likely to be much higher, or 25 to 37.5%, over a period of 15-30 years.
In 2021 alone, it is estimated that 106 million people will own Bitcoin. So less than 10% of the world population HODL BTC.
Imagine another 10% owning BTC and even 50% of the world using Bitcoin in the coming years?
The source: buybitcoinworldwide.com
In terms of retirement savings, let’s say retirement savings for someone with 0.01 bitcoin. He wants to retire in 15 or 30 years.
Scenario 1 (caution): Present value of 1 Bitcoin = $ 50,000 (approximate). One person has 0.01 bitcoin. Save $ 100 per week ($ 5,200 per year) for 30 years. Bitcoin’s estimated 30 year compound interest = 25%.
The source: Money chimpanzee
Scenario 2 (caution): Similar to scenario 1, but within a period of 15 years.
In comparison, gross profit over 30 years is much greater than 15 years. This is reminiscent of Warren Buffett’s famous quote:
“We owe the shade we have today to someone who planted a tree a long time ago.”
This is why everyone should start planning for retirement as early as possible.
Scenario 3 (semi-cautious): Present value of 1 Bitcoin = $ 50,000. One person has 0.01 bitcoin. Save $ 100 per week ($ 5,200 per year) for 30 years. Bitcoin’s estimated 30 year compound interest = 37.5%.
Scenario 4 (semi-cautious): As scenario 3, but for 15 years.
The above four practical plans can help investors embark on this path. However, if the starting number is 0.001 BTC, or 0.1 BTC, or even> 1 BTC, stocks will increase in value in the future.
In conclusion, Bitcoin is a volatile asset with a higher risk than others who invest for retirement. However, investing long term is a great way to diversify an investment portfolio and offers more advantages than other alternative investments.
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