Fidelity recently announced that they will allow investors to purchase Bitcoin in their 401(k) account later this year. This is the first time a major retirement plan provider will allow crypto in their fund line up. What an exciting time to be an investor as there is a transformation of the financial industry occurring.
Does Bitcoin belong in 401(k) accounts?
Absolutely. Investors are often disadvantaged with minimal fund options and limited access to a broad range of asset classes in their 401(k) accounts. Investor preferences are better served when more asset classes and more fund options are available. This move by Fidelity gives investors more choices to anew asset class and more diversification within their 401(k).
It is important to note that exposure to Bitcoin does come with increased volatility. We believe Fidelity is being prudent by trying to mitigate the risk to investors by implementing a 20% account balance cap to Bitcoin. Overall, it’s great that investors can finally access this asset class in a simplified way, and we like that there’s some protection in place so that a new investor doesn’t overweight their portfolio in one concentrated position.
How much should I allocate to Bitcoin?
We'd recommend someone that’s new to Bitcoin to start with a small initial investment and monitor the position over time to reconfirm their investment decision. If this initial holding period is comfortable for them, then we would discuss increasing their allocation of Bitcoin up to a range of ~1-5% of their total portfolio, while taking into consideration their unique goals, risk score and net worth until an appropriate target allocation is reached. We feel this allocation range would be adequate enough to provide meaningful exposure and diversification to a portfolio.
Should I try to diversify amount digital assets?
In general, more diversification is typically better. At this time, the only exposure to digital assets that Fidelity is offering is exposure to Bitcoin. Bitcoin is the the largest digital asset by market capitalization. It will likely take more time for additional digital assets to be included in 401(k) accounts.
We received this exciting update while attending the PlannerDAO conference in Kansas City. PlannerDAO is a decentralized autonomous organization created to empower financial planners to bring digital assets and decentralized finance to investors.