Is Investing Your Pension in Crypto a Good Idea?
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Is Investing Your Pension in Crypto a Good Idea?

January 21, 2021      Cryptoknowmics

The UK’s Financial Conduct Authority has warned UK investors against investing in cryptocurrency. This is because “investments and lending products related to crypto come with very high risks”. The FCA even recently banned retail customers from investing in cryptocurrency derivatives in the country, due to the high risk they present retail investors. However, critics have hit out at the FCA’s decision, saying the crypto ban is a regressive move that stifles innovation. There’s also the possibility that UK investors may now be driven to other less-regulated avenues in order to continue trading cryptos.

Given how contentious cryptocurrencies are, you might ask: why risk tying your money up in these volatile assets? The answer is simple: the end goal for most people is to build a retirement fund on which you can comfortably live for the rest of your years. And with cryptocurrency becoming increasingly popular and profitable, many see it as the future of financial savings.

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One big reason that people are looking to boost their pension savings is the difference between the recommended amount of savings a person should have, versus the reality for most people. Statistics collected by EQi show that the average person in the UK should aim to build a pension pot of £300,000. However, pensions average at £156,000 for men and £51,100 for women, highlighting the need for assets with better returns. Cryptocurrency is seen as one investment vehicle that pension investors can use to help ensure they don’t fall short of the recommended figure.

For those undecided on whether to use crypto with their pension we’ve compiled a few pros and cons of investing in crypto:

Pros

Potential returns.

It’s no exaggeration to say that cryptocurrency can make multi-millionaires out of ordinary people. Bitcoin investor Erik Finman is one such example as he bought $1,000 (£731) worth of Bitcoin at the age of 12. He now owns $4.5 million (£3.29 million) in Bitcoin. While we would still caution against making hasty decisions, the potential returns crypto offers proves attractive to many individuals, especially given its newfound appeal for established financial institutions.

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Portfolio diversification.

Investing in crypto adds variety to your portfolio. Since returns aren’t tied to any specific industry, this can be helpful in circumventing the lows of other investment vehicles and reducing your losses. A diverse pension plan is one that is more likely to survive any rough patches and generate more money in the long-term.

Ease of transaction.

Given its nature as a decentralised system, anyone can get into crypto, as long as they have the resources for it. The removal of middlemen from the equation also means lower transaction fees for transfers.

Cons

Volatility.

The crypto market relies on market supply and demand, and isn’t affected by things like inflation and government interest rates. Because of this, it can be quite volatile and not the most stable investment. To address this risk, investors should hedge their allocations in crypto and diversify their portfolio instead.

Lack of a central regulation authority.

One of Bitcoin’s claims is that it is a “decentralized, peer-to-peer network with no central authority or middle-men.” Though this can aid in democratising transactions among users, decentralisation poses problems in terms of user protection. With fiat currency like money, it’s easy to turn to banks to resolve disputes. The same can’t be said of cryptocurrency. The biggest risk is that a large pension pot could quickly disappear without anyway to get it back.

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Fraud risk.

As institutional acceptance in crypto grows, so too does criminal interest. In fact, plenty of Bitcoin scammers are waiting to prey on unsuspecting beginners. Since transactions are done online, criminals can take advantage of any number of holes in the connection to employ their scheme. And with no central authority to turn to, Bitcoin users have to be careful they don’t lose all their investments.

Though we have yet to fully understand the financial implications of digital currency, it can be a valuable addition to your pension pot. Consider the points we’ve listed above, and see if investing in crypto fits your retirement goals.

#Invest your pension
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