Is it smart to invest in crypto before a 401 (k) or an IRA?


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Many investors invest their money in crypto – the younger segment making up the majority.

A recent survey by Select and Dynata found that nearly half (45%) of 18- to 34-year-olds say they’ve bought crypto. They make up the largest share of crypto investors, followed closely by 37% of 35-44 year olds. Meanwhile, only 11% of 55-64 year olds and just 4% of over 65s are buying digital currency fad.

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Investors can buy coins for a variety of reasons, whether in the hope of making a quick profit, the potential for long-term growth, or just to participate in the excitement. However, some young investors are choosing crypto over investing for their retirement. And this is where the problem lies.

The same survey found that 44% of investors who have less than $ 10,000 in investable assets currently invest in crypto, but only 26% have a 401 (k) or 403 (b) and 17% have an IRA.

While cryptocurrencies can certainly be fun, short-term investments, Lindsey Bell, chief markets and money strategist at Invest ally, do not recommend investing a substantial portion of your portfolio in these assets or losing your retirement fund.

“Investing for the long term should always take precedence over investing for the short term,” she says. “The benefits of a 401 (k) or IRA, including a corporate match, should be researched before allocating any short-term fun money. “

Here’s what to consider

Tony Molina, CPA and Product Evangelist at Wealth front (the first robo-advisor to offer crypto access – up to 10% of your wallet), agrees that the rush to join the crypto craze shouldn’t hinder long-term wealth building for the retirement. And it’s even more important if your employer offers a contribution equivalent to 401 (k) (hey, that’s basically free money).

But saving for retirement doesn’t necessarily mean running out of crypto if it’s something you’re really passionate about, says Molina. If you have a 401 (k), he recommends that you at least contribute up to your employer’s amount, and then consider buying crypto with the extra funds you have left. For example, if your business is up to 6% of your salary, contribute 6% to first double what you can put aside before developing an investment strategy elsewhere.

“I encourage investors to consider cryptocurrency as a type of asset class that they could include in their long-term wealth building strategy,” adds Molina. “Crypto shouldn’t necessarily be the primary focus of your strategy due to the uncertainty and risk involved, but it can fit into your portfolio as a whole.”

Investing in crypto, although easily accessible through financial apps like Square App Cash and Pay Pal, carries risks. Most cryptocurrencies and crypto tokens experience significant price volatility, which is why this is considered a risky choice for many retail investors.

“While it’s easy to get carried away by the hype and the potential instant gratification of crypto or other trendy asset classes, it’s also important to stay grounded in reality,” Bell said. . “These types of assets are very volatile, and although they are becoming increasingly common, the future of growth and regulation remains uncertain.”

Don’t have access to 401 (k) to save for retirement?

For those whose companies don’t offer retirement benefits, prioritizing opening a traditional or Roth tax-efficient IRA before setting money aside for crypto.

“An IRA is a great option for saving for retirement because you have a lot of control over what you invest in, you can qualify for great tax breaks, and you can open an account on your own without depending on your employer, ”says Molina.

You can find IRA options offered by many national banks, investment firms, online brokers, and robot advisers. Select the ones that offer the best IRAs for all types of investors, as well as the best Roth IRAs to grow your money tax-free. Charles Schwab, Fidelity Investments and Improvement does both rankings.

At the end of the line

Whether you want to invest in cryptocurrency because it has worked well in the past or because you feel the pressure to see everyone else doing it, it’s important to prioritize your retirement funds first. Crypto’s past performance doesn’t necessarily mean it will continue to perform well in the future, and FOMO isn’t a solid reason to get involved, Molina warns.

Curious crypto investors can get the best of both worlds by first contributing enough to their 401 (k) to respond to correspondence from an employer, if offered, or by funneling funds into an IRA. If you have some extra cash, then consider buying crypto, but make sure you know in advance what you’re getting into and don’t allocate more than 10% of your portfolio to these risky investments. Remember that diversification is the key to a successful investment portfolio.

“Before you embark on an investment, especially a riskier asset like crypto, make sure you have a logical argument as to why you think the value of the investment will increase over time,” adds Molina.

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Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.


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