Investment Strategies for Retirement, Retirement Planning

Should Bitcoin be Part of Your Retirement Portfolio?

by Jason Wenk

Sep 26, 2017

When an investment goes up 300% in less than a year, it usually gets people’s attention. If you’re wondering if you should be using Bitcoin as part of your retirement assets, read on.

That’s definitely the case with Bitcoin (up 300% YTD as of 9/15/2017), though it’s not actually an investment… it’s a currency. A cryptocurrency (digital currency with no regulation) at that. And it’s something that most people don’t truly understand.

But hey, it’s up 300%, so shouldn’t it be part of your retirement portfolio?

If you’re wondering if you should be using Bitcoin as part of your retirement assets, read on.

Would Warren Buffett Own Bitcoin?

What better way to decide if an investment is smart than to see if it passes (arguably) the world’s greatest investor’s litmus test? Here are a few things we know about Warren’s investment philosophy:

  1. Warren has two main rules of investing; the first – don’t lose the money
  2. The second is to not break rule number 1
  3. And, for good measure, here’s a third rule: Buffett has been on the record numerous times saying he does not invest in things he doesn’t understand (it’s how he avoided the dot com bubble of the late 90’s)

So let’s take a look at how Bitcoin stacks up against these three rules…

Rules 1 and 2: Can you lose money (as in, all or almost all of it) in Bitcoin?

For the hardcore fans of Bitcoin, they might argue this, but for the rest of us – Bitcoin is volatile. And when I say volatile, I mean super-volatile…as in, there are few things more volatile you can put your money in.

This is true of anything that can go up 300% in 9 months, and it’s especially true if what we’re talking about isn’t a real investment. Investing in Bitcoin is akin to putting your money in cash and just leaving it there, only the cash in this case is a digital currency. There’s no business or product, and no government (for better or worse) that regulates it.

For an idea of how volatile Bitcoin is, just take a look at the last few days’ price changes as of this writing:

9/14/2017: -17.57%
9/15/2017: 11.21%
9/16/2017: -0.79%
9/17/2017: 1.44%
9/18/2017: 10.44%

If you’re keeping score, that’s three of the last five days where the change was greater than 10%. Yikes!

At the high point for 2017 (about 15 days ago) Bitcoin was up over 400%. It’s given up 25% in 2 weeks.

Bitcoin might go up more. It might not. It might go down a lot. The truth is, only time will tell.

One thing is certain though: Bitcoin can lose a lot very quickly. Because of this, I say it doesn’t pass Buffett’s two primary rules of investing.

Rule 3: Do you really understand Bitcoin?

Bitcoin is a digital currency. It’s based on something called blockchain technology. Blockchain, for what it’s worth, is actually really cool (especially if you’re a computer geek like me).

But… do you know anything about blockchain technology? Have you ever heard of it? Do you, practically speaking, know what it does? Why should a currency be tied to it?

If you can’t answer these questions about Bitcoin, then it doesn’t pass Buffet’s 3rd rule.

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But What if I Miss Out on those Huge Gains?

Bitcoin is up 300% YTD in 2017 – but it’s up nearly 800% over the last 12 months.

Did you suffer by missing those gains? Probably not.

I’m not here to beat up on Bitcoin. It’s a very promising technology (the blockchain tech, that is), and the idea of an unregulated currency that cuts out the banks is fascinating to me. That’s a potentially revolutionary idea.

But unless you have spare money lying around you’re not concerned about losing, then Bitcoin is probably not for your retirement savings. What most people really need is simple. It’s boring. It’s not revolutionary.

Here’s what most people really need:

  1. A solid financial plan. One that analyzes the probability of different financial strategies being able to sustain your long-term goals. I know, it’s pathetically boring, but it works.
  2. A customized, tax-smart, low-cost investment strategy. This is only slightly more exciting than a financial plan, but so, so very important. Many people choose investments based on what they see in the rear view mirror (like buying Bitcoin because it already went up). Or they pay through the nose in fees, many times without knowing about it.
  3. Someone they can trust when they have questions. Sadly, many financial “experts” are really just well-trained salespeople. But when you have concerns and need some objective advice, it’s not usually a salesperson you’d prefer to turn to.

These are pretty simple ideas… not nearly as exciting as chasing the 300% return of Bitcoin this year. They do, however, easily pass Warren Buffet’s 3 simple rules of investing.

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So, if you have questions, feel welcome to send them our way. I’ve put together a group of fellow financial nerds that love to help answer questions. Our specialty tends to be retirement-focused, but we’re happy to dig into anything mentally stimulating (which means it would bore most people to death) ?


Jason Wenk

Jason Wenk

Jason Wenk is recognized as one of the world’s leading retirement investment professionals. He is the founder, CEO, and Chief Investment Strategist of FormulaFolio Investments where he oversees the management of over $2.3 billion. FormulaFolios was recently ranked as the #10 fastest-growing private company in the country by Inc. 500.

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