Bitcoin In Your 401(k)? Here's What To Consider Before Deciding If It’s Right For You Bankrate Caret RightMain Menu Mortgage Mortgages Financing a home purchase Refinancing your existing loan Finding the right lender Additional Resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Bank Banking Compare Accounts Use calculators Get advice Bank reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Credit Card Credit cards Compare by category Compare by credit needed Compare by issuer Get advice Looking for the perfect credit card? Narrow your search with CardMatch Caret RightMain Menu Loan Loans Personal Loans Student Loans Auto Loans Loan calculators Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Invest Investing Best of Brokerages and robo-advisors Learn the basics Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Home Equity Home equity Get the best rates Lender reviews Use calculators Knowledge base Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Loan Home Improvement Real estate Selling a home Buying a home Finding the right agent Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Insurance Insurance Car insurance Homeowners insurance Other insurance Company reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Retirement Retirement Retirement plans & accounts Learn the basics Retirement calculators Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Advertiser Disclosure
Advertiser Disclosure
We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Our articles, interactive tools, and hypothetical examples contain information to help you conduct research but are not intended to serve as investment advice, and we cannot guarantee that this information is applicable or accurate to your personal circumstances. Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. Editorial disclosure
All reviews are prepared by our staff. Opinions expressed are solely those of the reviewer and have not been reviewed or approved by any advertiser. The information, including any rates, terms and fees associated with financial products, presented in the review is accurate as of the date of publication. SHARE: Boston Globe/Getty Images May 06, 2022 Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our investing reporters and editors focus on the points consumers care about most — how to get started, the best brokers, types of investment accounts, how to choose investments and more — so you can feel confident when investing your money. Investing disclosure: The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice. Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice. Investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance and investment objectives. Investing involves risk including the potential loss of principal. Bankrate logo Editorial integrity
Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Key Principles
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. Editorial Independence
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Fidelity Investments recently announced that it’s planning to allow investors to purchase Bitcoin through their 401(k) retirement plans. Starting later this year, workers may have the choice to buy the cryptocurrency, but only if their employer uses Fidelity for their plan and allows the option to do so. Investors would be able to add as much as 20 percent of their balance to the digital currency, according to Fidelity, though individual employers may restrict this to a lower percentage for their workers. The ability to invest in or other cryptocurrencies has been almost non-existent in 401(k) plans so far. That makes the move by Fidelity – one of the country’s largest retirement plan providers – such a watershed moment for the nascent crypto industry. It also comes amid a period of increasing regulatory openness to investing 401(k) plans in high-risk alternative assets. With the possibility that Bitcoin may be available in your 401(k) plan in the near future, here’s what you should know about investing in crypto and why many experts say to stay away from it. 3 things to consider before adding Bitcoin to your retirement savings
Here are three things that experts say you should know about Bitcoin before you even think about putting your hard-earned money into this or any other. 1 Bitcoin is not backed by anything
The price of Bitcoin has run up in recent years, , and that may have given the impression that there’s some underlying value to the cryptocurrency. But it’s absolutely vital to understand that Bitcoin is not backed by anything at all, unlike stocks or bonds. When investors buy a stock, they have a fractional ownership interest in a business. Over time the stock will rise and fall according to how well that underlying business performs. So, highly successful businesses such as Amazon will have stock that rises significantly in price over time. In other words, the stock is backed by the assets and cash flow of that underlying company. In the case of Bitcoin, there’s nothing behind it – no assets or cash flow that backstop its value. “There is no rational or fundamental way to determine the value of Bitcoin or any of the , as one can’t apply the tools of traditional finance to arrive at the intrinsic value (or true value) of the supposed asset,” says Robert R. Johnson, professor, Heider College of Business, Creighton University. “There is no way to value cryptocurrencies other than the ‘greater fool theory’ – the hope that some greater fool will pay you more than you paid,” says Johnson. 2 Bitcoin is highly speculative and risky
This lack of any fundamental value makes Bitcoin highly speculative and risky, and the price is driven by sentiment alone, because there’s no inherent value to the cryptocurrency. “It is still an extremely speculative investment with an amount of risk that is significantly more than most people are willing to take,” says Josh Simpson, investment advisor with Lake Advisory Group in Lady Lake, Florida. “It’s just like gambling at this point.” “I can think of few worse strategies than committing retirement funds in tax-advantaged accounts to cryptocurrencies,” says Johnson. “‘Investing’ in bitcoin and other cryptocurrencies is pure, unadulterated speculation,” he says, putting the word investing in air quotes. “I still don’t believe that it makes sense for the average investor or individual with a 401(k) to have cryptocurrency in their retirement accounts,” says Simpson. 3 Many serious investors are skeptical about Bitcoin
On top of these fundamental issues – and because of them – Bitcoin and other cryptocurrencies are laughed off by many serious investors, including many of the most widely respected. Legendary investor Warren Buffett, head of Berkshire Hathaway, has said that he’s not interested in Bitcoin because it’s not a productive asset. At the 2022 Berkshire Hathaway shareholder meeting, he said, “Now if you told me you own all of the Bitcoin in the world and you offered it to me for $25, I wouldn’t take it because what would I do with it? I’d have to sell it back to you one way or another. It isn’t going to do anything.“ Johnson quotes Buffett’s business partner Charlie Munger who said about crypto: “To me, it’s just dementia. It’s like somebody else is trading turds and you decide you can’t be left out.” Ask yourself these questions before deciding if Bitcoin is right for your 401 k
If you’re still interested in buying cryptocurrency, however, ask yourself a few questions to see whether it makes sense for you and your situation. Simpson offers three questions that he thinks the general public should be asking before they jump into the crypto market. Why am I thinking of putting my money in this? “Is it just because it is what the media is telling me everyone else is doing,” says Simpson. “You would think that as recently as the Bernie Madoff case was, people would be leerier of ‘get rich quick’ schemes. We all hear about the people who made millions on cryptocurrencies. What we don’t hear about are the thousands of other people who went broke.” Do I have the risk tolerance to invest in this? “We’ve all seen the wild swings in value that cryptocurrency goes through, sometimes daily,” he says. “Can you, as an investor, really stomach watching your account value go up by 50 percent this week and down 50 percent next?” Do I understand what I’m investing in? “Most people do not have any idea how cryptocurrency works, how it’s valued and who uses it,” says Simpson. “Take some advice from Warren Buffett, don’t ever invest in something that you don’t understand.” Even beyond these questions, you should consider how crypto fits into your retirement portfolio. The vast majority of Americans should steer clear of risky investments and stick to proven methods of generating wealth, says Chris Barnes, chief commercial officer, Escalent, a human insights company. “Most are already behind on saving for retirement and trying to use cryptocurrency as a way to catch up is likely to end in more losses than gains,” says Barnes. “The truth is that the traditional, methodical and admittedly boring ways of saving money for retirement are the most effective – not cryptocurrencies.” More companies likely to offer crypto in 401 k s
With Fidelity’s move into Bitcoin for 401(k)s, industry watchers expect other retirement companies to follow suit, at least at the moment. “Because such a big player in the 401(k) market has taken the step, I’m confident we will see more of the providers push towards this offering,” says Faron Daugs, CFP, wealth advisor, founder and CEO at Harrison Wallace Financial Group in the greater Chicago area. “This is a great way for Fidelity to show it’s a responsive, cutting-edge brand that’s eager to meet popular demand for its customers,” says Barnes. “For those reasons, many of Fidelity’s competitors are likely to follow suit in short order. That said, I expect at least one brand will buck this trend and use their stand against cryptocurrencies in 401(k)s as a differentiator of their own.” “For the industry, it means other 401(k) providers will have to find a way to offer this option to their investors to stay competitive,” says Simpson. “I don’t know if there will be more of a push for access to crypto in 401(k) plans, but there will need to be much more oversight, regulation and education about the crypto industry.” Regulators are still skeptical of crypto
While Fidelity Investments is set to become the first major retirement-fund company to let participants hold Bitcoin in 401(k) accounts, the company and the broader industry could still feel pushback from government regulators on the move. In March, the U.S. Department of Labor, which regulates company-sponsored plans, advised firms to “exercise extreme care” before allowing employees to invest in cryptocurrency as part of retirement plans. “I’m certain that Fidelity did extensive research before they made a decision to authorize crypto purchases within its 401(k) platform,” said Daugs. “However, there could be some potential pushback, especially from regulators, due to the very speculative nature of cryptocurrency.” Regulators have a number of different steps they could take to slow the rollout of cryptocurrency into retirement plans or eliminate it altogether. “The government and regulators could slow down this expansion by increasing the regulatory burden that is placed upon these different cryptocurrencies,” says Simpson. “By forcing these investment options to be more transparent about their users, the number of coins in existence and how they are traded or held, it could have a significantly negative impact on their value, considering the largest users of cryptocurrencies worldwide are criminal organizations.” Or regulators could work even more directly to stop 401(k) accounts from buying cryptocurrency. “They could take a heavy-handed approach and outright ban cryptocurrencies from 401(k)s or tax-deferred accounts more broadly based on likelihood that they create dangerous bubbles or liabilities,” says Barnes. “Whether they opt to go this route will likely come down to the broader politics at play with regard to cryptocurrency regulation, which are a long way from fully playing out.” But whatever regulators do, individuals are best positioned to protect themselves, because they’re able to make sensible decisions about what to own or not own. “I believe truly understanding what you own and why you own it, is vitally important in any investment,” says Daugs. “As both an investor and advisor, I believe it’s extremely important to educate yourself on what you own, why you own it, and understand all the potential risks involved in that investment you are considering for your portfolio.” Bottom line
While Fidelity Investments has jumped out ahead of other major rivals in allowing Bitcoin in its 401(k) accounts, that doesn’t mean you must invest in it, if you’re presented with the opportunity. Instead, experts recommend sticking with a time-tested means of generating wealth – buying and holding a well-diversified portfolio of high-quality investments and then adding to your portfolio over time. A great way to do this is to buy , which is available at low cost and has an enviable track record of returns over time. SHARE: Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Related Articles