It's hard to look at the news these days without reading something about cryptocurrency. Many investors are putting money into cryptocurrency in an effort to join the ranks of those who have gotten rich by trading in digital coins. And soon, you might have the option to invest in cryptocurrency not just for the near term, but for your retirement.
Will 401(k)s start to include cryptocurrency?
Today's 401(k) plans don't include the option to invest in cryptocurrency. But that could be changing.
ForUsAll Inc., a 401(k) provider, announced earlier this month that it's striking a deal with leading crypto exchange Coinbase Global (COIN -2.83%) that will allow plan participants to invest up to 5% of their 401(k) contributions in cryptocurrencies like Bitcoin (BTC -0.26%).
Now just because one 401(k) provider will be offering cryptocurrency doesn't mean every provider will immediately follow suit. But given the popularity of investments like Bitcoin, there's a good chance more will begin to at least consider bringing cryptocurrency into the fold.
Should you invest your retirement savings in cryptocurrency?
Of course, whether it pays to add cryptocurrency to your 401(k) is a different story. Though a lot of people have made money with cryptocurrency, it's also a very volatile, speculative investment.
Ultimately, the long-term value of digital currencies like Bitcoin will depend on how widely accepted they become as a form of payment. Right now, you can't exactly walk into your average supermarket and pay for groceries with cryptocurrency.
Because it's hard to predict what the future holds for Bitcoin and other digital currencies, it can be a risky investment for your retirement -- namely because there's a good chance it will be worth absolutely nothing in 10, 20, or 30 years.
In fact, a lot of people who buy cryptocurrency do so on a short-term basis because they know its future is shaky. But your 401(k) should be centered on a long-term wealth-building strategy, especially if you're relatively young and you're not planning to bring your career to an end for many years.
Now it is worth reiterating that ForUsAll only plans to let plan participants put up to 5% of their money into cryptocurrency. And that alone speaks to its speculative nature. It's also a responsible way to introduce cryptocurrency investing to people who may be excited to dabble in it, but don't really know much about it other than it's in the news a lot.
Be careful with crypto
Even if cryptocurrency doesn't make its way into your retirement plan anytime soon, you can still invest non-retirement funds in it. But be careful.
While there's no such thing as a risk-free investment, cryptocurrency is a lot riskier than putting money into stocks, which have a proven history of gaining value over time. Bitcoin, by contrast, is only a little more than a decade old, and we don't know how much staying power it or other digital currencies have.
In fact, the 5% threshold mentioned earlier might be a good start if you're going to get into cryptocurrency at all. Easing your way in is a better bet than going all in -- and running the risk of losing all of your money in the process.