Plenty of Americans have already dipped their toes into crypto. Some 17% of the more than 1,400 people surveyed by Principal Financial Group said they had invested in non-traditional options such as cryptocurrencies and meme stocks, compared to just 11% in 2020. But should this be a part of your nest egg, or not? We asked financial pros to weigh in on what percentage, if any, of your nest egg you should put in crypto.
The answer: It depends on who you ask. “We recommend people allocate 1% to 5% [of a portfolio to crypto]. It’s very high risk, so it must be a long-term investment and people need to look at it like a small cap tech stock,” says Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management.
Many others say you don’t need crypto in your nest egg at all, but if you want it, dip your toes in cautiously. Indeed, certified financial planner Brad Ledwith says when considering cryptocurrency as an asset to your portfolio, you should look at it like you’re a gambler walking into a casino. “A lot of people walk into a casino and they budget how much they are willing to lose. Are you willing to lose 1-2% of your entire portfolio? If so, that may be a good allocation, but it is all up to your gambling risk tolerance. That’s similar advice to what Suze Orman gives: The finance guru once noted that one should only invest as much in crypto as “you are willing to lose.” In short, whoever’s advice you listen to, be very cautious with crypto in your portfolio — it’s volatile and risky.
How do I invest in crypto?
To be sure, it’s unlikely you will be offered crypto in your workplace 401(k) plan. Though small 401(k) provider ForUsAll, for example, allows participants to allocate up to 5% of their retirement funds into crypto, most 401(k) providers don’t offer this. So if you want to put some of your nest egg into crypto, you may want to open up a bitcoin IRA (you can find details about bitcoin IRAs here). This is a type of self-directed IRA that allows you to invest in crypto; it works a lot like a regular IRA (but in this case you invest in crypto), you can choose between a traditional and Roth self-directed IRA, and you get the associated tax advantages. Note, though, that annual contribution limits for IRAs are $6,000 if you’re under 50 and $7,000 if you’re over 50 in 2021.
If that doesn’t work for you, you can invest in crypto via online exchanges like Coinbase (the largest U.S. crypto exchange) and Gemini or via online brokers like Robinhood and SoFi Invest. This guide can help you figure out how to navigate that.