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Varun Deshpande

How to Crash-Proof Your Retirement Using Crypto?

There is never enough for retirement. People are likely to be both financially and emotionally devastated if their retirement investments decline significantly or almost get wiped out due to the loss in the market value. How does someone avoid such a situation and ensure a good financial position after retirement? Today, investment in cryptocurrencies can enable people to achieve higher returns with lower risks. Such an investment is likely to make their retirement funds crash-proof as well.

Cryptocurrencies such as Bitcoin and Ethereum are a medium of exchange, but created and stored electronically. The central banks do not determine their supply; neither can they impose any regulatory control over them. When introduced a decade ago, cryptocurrencies were met with deep skepticism and were dismissed as a fad. The initial skepticism for cryptocurrencies has now begun to dissipate, and they are slowly gaining mainstream popularity. Big players and institutional investors have started investing in them. According to a survey commissioned by Fidelity Investment, almost half of the institutional investors believe that digital assets are worth investing in, and they intend to invest more in them over the next five years. 

The growing popularity and mainstream acceptance, along with increasing investment by big players, have made cryptocurrencies an ideal long-term investment, which has the potential to give high returns.   

It Pays to Include Cryptocurrencies in Retirement Portfolio

With rising house, education and health costs, it has become difficult to save money for retirement. More and more people are looking for better alternatives to the traditional form of retirement funding — stocks, bonds, and certificates of deposits — which could provide them with a consistent, life-long income. Cryptocurrencies can be that alternative. Investment in them, along with investment in other assets, can ensure that people never outlive their savings post-retirement.

Here are a few reasons why cryptocurrencies are a good investment for retirement.

  • Full Control over Investments: Investors have full control over their investments. They hold cryptocurrencies independent of a custodian, because of which, they can avoid third-party management errors or fraud.  
  • Limited Supply: Unlike fiat currencies, cryptocurrencies have a limited supply. With increasing mainstream adoption and diminishing circulation, the values of cryptocurrencies are projected to keep going up in the coming years.
  • Potential Outsized Gains: The crypto market is highly volatile, and cryptocurrencies are deemed risky assets. There are sudden losses but when the market is on an upward trajectory, it also offers investors outsized profits. Also, cryptocurrencies’ value continues to rise year-over-year despite extreme fluctuations in their prices. For example, in July of 2010, the Bitcoin value was 0.0025 cents for one coin, and in July of 2019, its value touched $12500 for one coin. If investors buy and hold cryptocurrencies for the future, they can earn high returns thanks to the volatile market. 
  • Easily Accessible to Everyone: A significant number of people don’t have a retirement fund because they don’t have bank accounts or accounts in conventional financial institutions. Cryptocurrencies eliminate the need for bank accounts or background checks to open one. Anyone from anywhere can invest in cryptocurrencies and hold them for the future.
  • Growing Number of Places Where Cryptocurrencies Accepted as a Payment: A lot of e-commerce sites, retailers, and fast-food chains now accept cryptocurrencies as payment. Other places will begin accepting them when digital coins gain more mainstream acceptance. A few years down the line, it is likely that retirees may use their cryptocurrencies to buy things for their everyday use.

Crash-Proofing Retirement Using Crypto  

People are reluctant to invest in cryptocurrencies because the market continues to swing up and down. However, stock markets are also volatile and unpredictable. There can be a sudden and dramatic decline in the prices of stocks as well, which could completely derail a retiree’s financial plans.

No investment is risk-free, but there are certain ways to manage risks and live a financially secure life post-retirement. Let’s take a look at how someone can crash-proof their retirement using cryptocurrencies.  

  • Diversification

Diversification of assets helps in balancing risks and rewards. It involves investing in a variety of assets, not just in a single asset class — therefore minimizing exposure to a particular asset class. Traditionally, people create a diversified retirement portfolio by investing in stocks, bonds, real estate, and more. Now, they have an alternative asset class in cryptocurrencies, which enables them to further diversify their retirement portfolio. Investment in digital currencies ensures that a decline in the performance of one asset — such as stocks — does not affect the overall financial health of the portfolio.  

Cryptocurrencies considerably mitigate risks and enable people to reach their long-term financial goals, which is saving enough money for retirement.   

  • Using as Hedge

Cryptocurrencies can be used as a hedge to reduce the total level of risk in a retirement portfolio. By investing in cryptocurrencies, people can offset potential losses due to adverse price movements in other assets.  

The ongoing trade war between China and the U.S. has the potential to hurt retirement savings, as the value of bonds and stocks may decline. It is because the government’s monetary policies and fiscal policies may have significant implications for bonds and stock markets. Also, as central banks and regulatory authorities have complete control over fiat currencies, it is possible that their one move can debase them.  

On the other hand, a trade war or a government’s policy does not impact the value of cryptocurrencies — negatively or positively. It is because governments and central banks have no control over them. This makes cryptocurrencies safer assets compared to stocks when the equity market is becoming more volatile.    

  • Holding for Long-Term

Cryptocurrencies have huge long-term growth potential. And, retirement planning is all about saving for the future. Holding digital coins for a few years can result in substantial gains in the future. It also lowers the risks.   

Conclusion

Like every other investment, cryptocurrency investment, too, does not assure investors of future performance. Cryptocurrencies, however, offer them a viable alternative asset, which can help mitigate risks and boost retirement savings. 

Start Investing in crypto: A complete beginners guide

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Disclaimer: This is not financial advice. Opinions, statements, estimates, and projections in this message or other media are solely those of the individual author(s).

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