Bitcoin (BTC -0.15%) has easily emerged as one of the most popular investments of 2021 -- perhaps more so than the meme stocks that broke the internet earlier in the year. Since Bitcoin was the earliest and is now one of the most well-known cryptocurrencies, it's easy to see why more and more people are eager to own it.
The reality is that you could end up making a lot of money by buying Bitcoin. But should you count on it to fund your retirement? Probably not.
Don't put your senior years at risk
Once you retire, you'll most likely need income outside of Social Security to keep up with your living expenses. That's where your savings and investments come in. And while you may want to add Bitcoin to your portfolio, you shouldn't do so at the expense of other investments.
While Bitcoin's value has risen dramatically since its inception, it's also been a notably volatile investment. That's not particularly unique to Bitcoin, but rather, a characteristic of the entire crypto market.
Because Bitcoin is so risky, it definitely shouldn't be the only place where you invest your nest egg. Not only could Bitcoin's value tank in the near term, but we don't know how changes within the crypto space might impact its future value.
If regulations come down the pike that make digital currencies a less-attractive investment (notably, from a tax standpoint), Bitcoin's value could plummet, taking your nest egg down with it. And that's a risk you can't afford to take.
Diversifying is key
While stocks have long been regarded as a viable long-term investment, putting your entire nest egg into a single stock is a poor choice. Similarly, you shouldn't sink all of your retirement savings into a single digital currency.
If you're going to buy Bitcoin with the goal of keeping it until your senior years, make sure it only comprises a small portion of your total portfolio and spread out your investments across other asset classes, as well. A good bet, in fact, is to have your portfolio consist of a nice investment mix that includes:
- Real estate (if you don't want to own actual properties, you can put money into REITs, or real estate investment trusts)
This setup protects you in case one specific asset class loses value on a whole. It also exposes you to different levels of risk. Bonds, for example, are typically far less volatile than stocks, so it's good to own more of them as retirement nears.
Take it slow
There's nothing wrong with buying Bitcoin, holding it for a while, and seeing how things go. But should you count on Bitcoin alone to finance your retirement? Absolutely not.
We don't know what the future holds for Bitcoin, and banking on any single investment could be a recipe for disaster. This especially applies to an investment that's only been around for a little over a decade with a notably uncertain future.