Cryptocurrencies have been all the rage these past few months, and it's not just Bitcoin (BTC 1.72%) that investors are rushing to scoop up. There's a host of digital currency options to load up on, and if you follow some of the stories about regular people becoming millionaires overnight by investing in them, you may be tempted to go a similar route.
In fact, if you're aiming to build some wealth for retirement, you may be considering adding cryptocurrencies to your portfolio. But here's why I won't be doing that anytime soon.
It's just too speculative
My retirement portfolio contains a mix of stocks, bonds, and REITs (which are real estate investment trusts, which trade like stocks but work a bit differently). Since I'm not planning to retire for a good number of years, the bond portion of my portfolio is pretty small, and the bulk of my money is sitting in stocks.
Stocks are risky -- and I'm not afraid of a little risk. But there are some stocks out there that have been around for a very long time, and they have a solid history of performing well. In fact, the stock market on a whole has a strong history of recovering from crashes -- and it's faced many through the years -- and coming out ahead.
Cryptocurrency, by contrast, is a much newer concept, and Bitcoin, for example, has only been around for a little more than a decade. And frankly, I just can't put a lot of faith in a concept that's not yet been proven.
Cryptocurrency may be hot right now, but will it continue to gain value on a long-term basis? We don't know, because we can't rely on historical data to tell us that. On the other hand, we can look at the stock market's history and make reasonable predictions as to whether it's a solid long-term investment or not (hint: it is).
The success of cryptocurrency will hinge on different factors that are, as of now, fairly unknown. For example, right now, it's not a widely accepted form of currency -- meaning you can't just march into your average store and make purchases using Bitcoin. But we don't know whether cryptocurrency will become anywhere close to as common as the good old U.S. dollar.
Furthermore, we don't know how regulations and tax laws surrounding cryptocurrency might evolve over time, for better or worse. And I'm not willing to take the risk of facing an even greater tax burden at a time in my life when I've chosen to bring my career to a close.
Now this isn't to say that cryptocurrency is a downright terrible investment, and that it's the wrong choice for most people's retirement. But personally, I'm just not a fan. If I do decide to invest in cryptocurrency, I'll probably do so on more of a short- or limited-term basis. But I don't intend to rely on cryptocurrency to fund my retirement. Frankly, it's outside my comfort zone, and that's reason enough not to do it.