Post by xray on Aug 13, 2022 18:33:36 GMT
SmartAsset
Senators Say Fidelity's New 401(k) Option is Risky, But Is It Right for You?
Wola Odeniran
Fri, August 12, 2022, 4:00 PM
Democrat senators sent a letter to Fidelity Investments questioning why the company would allow its 401(k) participants to be exposed to Bitcoin. Legislators called the crypto investment a “volatile, illiquid and speculative asset.” In April 2022, Fidelity Investments announced that it would allow individuals to allocate part of their retirement plan savings to Bitcoin. Let’s break down the risks and benefits of adding a crypto asset to your retirement plan. A financial advisor could help pick the best assets for your retirement plan.
Why U.S. Senators Called Out Fidelity Investments
Sens. Elizabeth Warren (D-MA), Richard Durbin (D-IL) and Tina Smith (D-MN) sent a letter to Fidelity Investments CEO Abigail Johnson criticizing the company’s decision to allow 401(k) participants to add Bitcoin to their investments.
In a joint statement, the senators said, “As one of the largest 401(k) providers, Fidelity (must be aware) of the precarious position of Americans’ retirement savings. While the average 401(k) balance is $129,157, the median balance for 401(k) accounts is just $33,472. With Americans living longer today than ever before, it is apparent that too many retirees are likely to outlast their balances during their golden years.”
Fidelity announced in April that retirement account participants could add Bitcoin to their retirement plans, which could allow savers to benefit from tax-leveraged accounts and diversify long-term holdings.
“There is growing interest from plan sponsors for vehicles that enable them to provide their employees access to digital assets in defined-contribution plans, and in turn from individuals with an appetite to incorporate cryptocurrencies into their long-term investment strategies,” said Dave Gray, Fidelity’s head of workplace retirement offerings and platforms, in a statement at the time.
Senators say that while 401(k) participants are fortunate to have access to a retirement plan, there are those who don’t have the ability within their budget to contribute to their employer-sponsored plan and will likely use their wages for personal and household essentials.
“This begs the question: when saving for retirement is already a challenge for so many Americans, why would Fidelity allow those who can save to be exposed to an untested, highly volatile asset like Bitcoin?” the Senators asked in the joint letter.
What Is Bitcoin?
SmartAsset: Should You Add Bitcoin to Your Retirement Plan?
Bitcoin is a virtual currency that is created and exchanged independently from the banking system or government authority. It is designed as a form of money that can be used by any group, person or entity without third-party involvement.
Bitcoins are created through the mining process, which involves computers solving mathematical equations. And when the computer solves the equation, it creates a specific number sequence that will be assigned to the bitcoin.
From an investment perspective, while Bitcoin won’t soon be available in Fidelity’s target-date retirement funds the way stocks, bonds and other securities currently are, the company has already laid the groundwork by recently introducing two Bitcoin-focused exchange-traded funds (ETFs), one of which is called Fidelity Crypto Industry and Digital Payments ETF (FDIG).
Available since April 2022, FDIG gives exposure to companies involved in blockchain technology, cryptocurrency and digital payments processing. The top holdings in FDIG include companies such as Block Inc. (SQ), Coinbase Global Inc. (COIN), Bit Digital Inc. (BTBT), Riot Blockchain Inc. (RIOT) and CleanSpark Inc. (CLSK).
Benefits and Risks of Bitcoin
Cryptocurrency experts and investors have lauded Bitcoin as an inflation hedge with a maximum supply of 21 million coins and unpredictable tendencies.
Bitcoin advocates maintain that its fixed number of coins provides scarcity and protects value during times of high inflation, which differs from central banks that can increase and tighten money supply depending on economic conditions.
Bitcoin prices can also have quick, high earning potential. For example, in early 2017, the cryptocurrency was valued at around $1,000 but spiked above $20,000 in December of that year. By April 2021, it more than tripled in value to above $66,000. But just over a year later, Bitcoin is valued at just over $22,500, almost one-third of its 2021 peak.
Despite this volatility, financial advisors remain keen on cryptocurrency investment. A 2022 Nasdaq survey of 500 financial advisors says that 72% want to invest more in Bitcoin and the broader cryptocurrency sector if a Bitcoin spot ETF gets approved.
For reference, a spot Bitcoin ETF would trade based on the price of Bitcoin, as opposed to futures ETFs, which trade on the price of Bitcoin futures.
The survey also reports that 86% of advisors who are preallocated to Bitcoin or other cryptocurrencies are planning to increase their allocation over the next year. And 50% are using Bitcoin-based ETF futures, while another 28% are planning to do the same within the next year as well.
Investors planning to invest in Bitcoin as an inflation hedge should take note that the crypto market has been tracking the stock market in 2022. And this has caused concern that investor sentiment in the stock market is spilling over to the crypto market.
For reference, the Chicago-based financial services company Morningstar said in April 2022 that the correlation between Bitcoin and other major asset classes “has gradually increased over the past few years.”
One month earlier, the Department of Labor asked plan fiduciaries to “exercise extreme care” before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu.
Sens. Warren, Durbin and Smith underline this risk as well.
“Perhaps most troubling is that in pointing to the risks of investing in Bitcoin on its website and planning to cap plan participants’ Bitcoin exposure to 20%, Fidelity is acknowledging it is well aware of the dangers associated with investing in Bitcoin and digital assets, yet is deciding to move ahead anyway,” they said in the joint letter.
Bottom Line
SmartAsset: Should You Add Bitcoin to Your Retirement Plan?
Participants in a 401(k) plan should carefully consider the benefits and risks before making crypto investments. While investors have put money into Bitcoin as a hedge against inflation, financial experts have also pointed out that the correlation between Bitcoin and the stock market has changed.
----------
Live Long and Prosper....
Senators Say Fidelity's New 401(k) Option is Risky, But Is It Right for You?
Wola Odeniran
Fri, August 12, 2022, 4:00 PM
Democrat senators sent a letter to Fidelity Investments questioning why the company would allow its 401(k) participants to be exposed to Bitcoin. Legislators called the crypto investment a “volatile, illiquid and speculative asset.” In April 2022, Fidelity Investments announced that it would allow individuals to allocate part of their retirement plan savings to Bitcoin. Let’s break down the risks and benefits of adding a crypto asset to your retirement plan. A financial advisor could help pick the best assets for your retirement plan.
Why U.S. Senators Called Out Fidelity Investments
Sens. Elizabeth Warren (D-MA), Richard Durbin (D-IL) and Tina Smith (D-MN) sent a letter to Fidelity Investments CEO Abigail Johnson criticizing the company’s decision to allow 401(k) participants to add Bitcoin to their investments.
In a joint statement, the senators said, “As one of the largest 401(k) providers, Fidelity (must be aware) of the precarious position of Americans’ retirement savings. While the average 401(k) balance is $129,157, the median balance for 401(k) accounts is just $33,472. With Americans living longer today than ever before, it is apparent that too many retirees are likely to outlast their balances during their golden years.”
Fidelity announced in April that retirement account participants could add Bitcoin to their retirement plans, which could allow savers to benefit from tax-leveraged accounts and diversify long-term holdings.
“There is growing interest from plan sponsors for vehicles that enable them to provide their employees access to digital assets in defined-contribution plans, and in turn from individuals with an appetite to incorporate cryptocurrencies into their long-term investment strategies,” said Dave Gray, Fidelity’s head of workplace retirement offerings and platforms, in a statement at the time.
Senators say that while 401(k) participants are fortunate to have access to a retirement plan, there are those who don’t have the ability within their budget to contribute to their employer-sponsored plan and will likely use their wages for personal and household essentials.
“This begs the question: when saving for retirement is already a challenge for so many Americans, why would Fidelity allow those who can save to be exposed to an untested, highly volatile asset like Bitcoin?” the Senators asked in the joint letter.
What Is Bitcoin?
SmartAsset: Should You Add Bitcoin to Your Retirement Plan?
Bitcoin is a virtual currency that is created and exchanged independently from the banking system or government authority. It is designed as a form of money that can be used by any group, person or entity without third-party involvement.
Bitcoins are created through the mining process, which involves computers solving mathematical equations. And when the computer solves the equation, it creates a specific number sequence that will be assigned to the bitcoin.
From an investment perspective, while Bitcoin won’t soon be available in Fidelity’s target-date retirement funds the way stocks, bonds and other securities currently are, the company has already laid the groundwork by recently introducing two Bitcoin-focused exchange-traded funds (ETFs), one of which is called Fidelity Crypto Industry and Digital Payments ETF (FDIG).
Available since April 2022, FDIG gives exposure to companies involved in blockchain technology, cryptocurrency and digital payments processing. The top holdings in FDIG include companies such as Block Inc. (SQ), Coinbase Global Inc. (COIN), Bit Digital Inc. (BTBT), Riot Blockchain Inc. (RIOT) and CleanSpark Inc. (CLSK).
Benefits and Risks of Bitcoin
Cryptocurrency experts and investors have lauded Bitcoin as an inflation hedge with a maximum supply of 21 million coins and unpredictable tendencies.
Bitcoin advocates maintain that its fixed number of coins provides scarcity and protects value during times of high inflation, which differs from central banks that can increase and tighten money supply depending on economic conditions.
Bitcoin prices can also have quick, high earning potential. For example, in early 2017, the cryptocurrency was valued at around $1,000 but spiked above $20,000 in December of that year. By April 2021, it more than tripled in value to above $66,000. But just over a year later, Bitcoin is valued at just over $22,500, almost one-third of its 2021 peak.
Despite this volatility, financial advisors remain keen on cryptocurrency investment. A 2022 Nasdaq survey of 500 financial advisors says that 72% want to invest more in Bitcoin and the broader cryptocurrency sector if a Bitcoin spot ETF gets approved.
For reference, a spot Bitcoin ETF would trade based on the price of Bitcoin, as opposed to futures ETFs, which trade on the price of Bitcoin futures.
The survey also reports that 86% of advisors who are preallocated to Bitcoin or other cryptocurrencies are planning to increase their allocation over the next year. And 50% are using Bitcoin-based ETF futures, while another 28% are planning to do the same within the next year as well.
Investors planning to invest in Bitcoin as an inflation hedge should take note that the crypto market has been tracking the stock market in 2022. And this has caused concern that investor sentiment in the stock market is spilling over to the crypto market.
For reference, the Chicago-based financial services company Morningstar said in April 2022 that the correlation between Bitcoin and other major asset classes “has gradually increased over the past few years.”
One month earlier, the Department of Labor asked plan fiduciaries to “exercise extreme care” before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu.
Sens. Warren, Durbin and Smith underline this risk as well.
“Perhaps most troubling is that in pointing to the risks of investing in Bitcoin on its website and planning to cap plan participants’ Bitcoin exposure to 20%, Fidelity is acknowledging it is well aware of the dangers associated with investing in Bitcoin and digital assets, yet is deciding to move ahead anyway,” they said in the joint letter.
Bottom Line
SmartAsset: Should You Add Bitcoin to Your Retirement Plan?
Participants in a 401(k) plan should carefully consider the benefits and risks before making crypto investments. While investors have put money into Bitcoin as a hedge against inflation, financial experts have also pointed out that the correlation between Bitcoin and the stock market has changed.
----------
Live Long and Prosper....
