Cryptocurrencies have been all the rage in recent months, and it’s not just Bitcoin (CRYPTO: BTC) that investors are quick to pick up. There are a plethora of digital currency options to load up on, and if you follow some of the stories of ordinary people becoming millionaires overnight by investing in it, you might be tempted to go a similar route.
In fact, if you want to build wealth for retirement, you may be considering adding cryptocurrencies to your portfolio. But here’s why I won’t be doing this 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 operate a little differently). Since I don’t plan to retire for a good number of years, the bond portion of my portfolio is quite small and most of my money is in stocks.
Stocks are risky – and I’m not afraid of a small risk. But there are stocks that have been around for a very long time that have a solid history of good performance. In fact, the stock market as a whole has a strong history of recovering from crashes – and it has been facing many years over the years – and coming out of it.
Cryptocurrency, on the other hand, is a much newer concept and Bitcoin, for example, has only been around for a little over a decade. And frankly, I just can’t trust a concept that hasn’t proven itself yet.
Cryptocurrency may be hot right now, but will it continue to gain value in the long run? We don’t know because we can’t rely on historical data to tell us. On the other hand, we can Look at the history of the stock market and make reasonable predictions as to whether it is a solid long-term investment or not (hint: it is).
The success of cryptocurrency will depend on various factors which are, at the moment, quite unknown. For example, at the moment it’s not a widely accepted form of currency – meaning you can’t just walk into your average store and shop using Bitcoin. But we don’t know if cryptocurrency will become as mainstream as the good ol ‘US dollar.
Additionally, we don’t know how the regulations and tax laws surrounding cryptocurrency might evolve over time, for better or for worse. And I am not prepared to take the risk of facing an even heavier tax burden at a point in my life when I have chosen to end my career.
That’s not to say that cryptocurrency is a downright terrible investment and that it’s not the right choice for most people’s retirement. But personally, I’m just not a fan. If I decide to invest in cryptocurrency, I will probably do so in the shorter or shorter term. 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.
This article represents the opinion of the writer, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.