Fidelity plans to offer bitcoin in its 401(k) pension funds. But is it better for you?

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  • Fidelity plans to add bitcoin to its 401(k) options.
  • Fidelity says it is responding to high interest in digital assets.
  • But critics say that investing pension funds in bitcoin is too risky.
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Bitcoin has fallen over 16% this year, but that hasn’t dampened the enthusiasm for the asset. That’s why Fidelity Investments is launching a bitcoin option for its 401(k) plans, but investors may still want to think long and hard about whether it’s right for them.

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Later this year, the nation’s largest pension plan administrator said the 23,000 companies for which it manages pension plans will be able to offer their employees Bitcoin as an investment choice. Investors will be able to set aside up to 20% of their 401(k) Bitcoin accounts, although employers will be able to lower this limit.

Crypto curiosity remains strong

Despite bitcoin’s sharp fall from its all-time high in November, the share of adults who considered buying bitcoin remained stable at 21% at the end of January. morning poll showed.

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“For holders, the current price of bitcoin represents just a fall, not a permanent loss of value,” writes Charlotte Principato, a financial services analyst at Morning Consult. “Bitcoin holders are not in the game because they see crypto as the future of payments or for other idealistic reasons. Instead, 70% of bitcoin holders say making money is their “top reason” for investing.”

Fidelity estimates that about 80 million Americans currently own or have invested in digital assets, prompting plan sponsors to address the issue. growing demandespecially among young workers.

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MicroStrategy, whose chairman and chief executive officer Michael Saylor Was One of Bitcoin’s Biggest Supporters and added bitcoin to company assets, will be the first company to offer bitcoin in its retirement plan through Fidelity.

“Serious Concerns”

Dan Casey, investment advisor and founder of Bridgeriver Advisors, doubts employers are asking Fidelity to make bitcoin available through their 401(k).

“I find this hard to believe,” Casey said. “Many employers I know don’t want this because they are responsible.”

Plan sponsors have a legal responsibility to review investment options offered to employees to ensure they are “prudent,” according to the Department of Labor, which regulates company-sponsored retirement plans. And at this time, the department does not consider cryptocurrencies and crypto-related assets to be reasonable.

“I have serious concerns about this course of action,” said Ali Khawar, the Administration’s acting assistant secretary for employee benefits. “Now it’s speculative assets.”

Man trading bitcoin on smartphone.

Critics say that cryptocurrencies and crypto-related investments are too volatile and too unregulated, especially for pension funds, that people should live out their golden years. But marketing hype such as Super Bowl ads and top list celebrities trading cryptocurrencies can give people FOMO or fear of missing out and making them jump. to full understanding risks.

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“His easy to get into trouble in the latest – and presumably the biggest – investment fad, but quick wins are not sustainable for long-term investing,” says Vanguard on its website about investing in cryptocurrencies.

Digital assets also have a high potential for fraud, theftand losses, skeptics note. Cryptocurrencies can be lost forever due to the simple loss or forgetting of a password or theft of digital wallets, the Department of Labor said. memo last month. Given the risks, the department cautioned plan sponsors offering these investments to explain how they honor their fiduciary responsibility to their consumers.

Safety First

Fidelity recognizes that not everyone may be comfortable with investing in digital assets, but for those who are comfortable, the company will provide educational materials so they can make informed decisions.

The company also said that each client will invest through a digital asset account, which will be stored on the Fidelity storage platform, to ensure the security of institutional-grade assets.

Fidelity says its new offering reflects “the steadily growing demand for digital assets across a variety of investor segments, and we believe these technologies and digital assets will represent a large part of the future of the financial industry.”

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Fidelity is probably right that digital assets will become the norm in the financial industry, but “it’s not clear what that looks like” so it’s too early to invest pension funds in them, Khawar said.

Vanguard echoed this sentiment, stating, “While we do not currently offer cryptocurrencies as an investment option, we recognize the impact they have on the investment world. As cryptocurrencies and blockchain become more popular, we will continue to monitor their development and determine the best path for our investors.”

Medora Lee is a USA Today TODAY money, markets and personal finance reporter. You can reach her at [email protected] and sign up for our free Daily Money newsletter for personal finance tips and business news every morning, Monday through Friday.

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