Shiba Inu (SHIB -9.78%) is a meme-based cryptocurrency created to be a "Dogecoin killer." Debuted in August of 2020, SHIB coins have experienced a meteoric rise in price since they began circulating. In fact, early adopters who invested $100 upon Shiba Inu's release would have ended up with $3.21 million by mid-February of 2022.
If you've seen these impressive gains, you might be interested in putting some money in yourself. In fact, you may even be wondering if it's possible for a Shiba Inu investment to grow enough to fully fund your retirement.
Unfortunately, this plan is unlikely to pan out for two key reasons.
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1. Shiba Inu may lack the competitive edge to succeed in the long term
There are hundreds of alt-coins out there. It's inevitable that not every cryptocurrency will become more valuable over time. Currencies likely to perform best are those that offer something unique in terms of the technology behind them or their adoption rate.
Shiba Inu operates as an ERC-20 coin built on the Ethereum blockchain, just as numerous other cryptocurrencies do. Few merchants accept it, and it offers nothing special in terms of transaction fees or processing time that separates it from many similar offerings.
With so many new blockchain projects emerging regularly, it's unlikely SHIB can continue its meteoric rise over the long term without a differentiating factor. While it has undoubtedly seen eye-popping gains since inception, much of the increase in price has been driven by social media hype and by the fact that a growing number of crypto exchanges have allowed trading to meet the demand created by all that attention.
When you're investing for retirement, you should be putting your money into assets that are likely to increase in value not just over a few months, but over many decades. Long-term investing has long been proved to be the best way to build wealth. By contrast, short-term trading rarely pays off due to the difficulty in successfully timing your purchase and sale.
Since there's little reason to believe that investors will continue to flock to SHIB for years to come, you'll likely want to opt for other investments in your retirement portfolio that have a better chance of standing the test of time.
2. Diversification is always preferable to betting on one single investment
Even if you believe that Shiba Inu has great potential, you still wouldn't want to bet your entire retirement on it.
In fact, you shouldn't be putting all (or even most) of your retirement money into any single investment unless you're buying an asset that comes with automatic diversification such as an S&P 500 index fund or an index fund that tracks the performance of the market as a whole.
If you focus solely on buying SHIB or any one asset and then it turns out your investing thesis doesn't pan out, you could lose most or all of your money and would have no fallback plan. Rather than taking such a huge risk, you're far better off spreading your cash around to build a diversified portfolio.
Now, you may decide that SHIB should have a small place in that portfolio. And there's nothing necessarily wrong with that as long as you have a solid reason to believe it's a good idea to hold it for the long term and you recognize that it's a higher-risk investment.
If you do make Shiba Inu part of your retirement investing, be sure you have plenty of safer assets in your portfolio as well that are more likely to pay off over the long term.
