Pondering about incorporating cryptocurrency into your pension savings? Insights from financial professionals are shared.
S&P 500 Retirement Account Holders Experience Volatility and Recovery, While Bitcoin Surges
Retirement account holders have experienced a rollercoaster ride in recent weeks as the S&P 500, often tracked by 401(k) accounts, nearly dipped into bear market territory before recovering all losses. Cryptocurrencies, particularly bitcoin, have mirrored this volatility, with the digital asset up 15% so far this year, contrasting the S&P 500's flat performance in 2025.
Over the past year, bitcoin's price has skyrocketed by 54%, while the S&P 500 has only increased by 11%. This disparity raises a question for retirement portfolios: should you invest in crypto?
The decision, according to analysts, hinges on an individual's risk tolerance. Cryptocurrencies offer the potential for significant gains but are threatened by similarly substantial losses, as the asset frequently experiences price swings, they said. A small holding could yield outsized returns while risking limited damage in the event of a downturn, analysts noted, but they advised against heavily investing retirement funds.
"There's potential for growth, but there's also big downside risk. So it really depends on how much risk the individual is willing to bear," Reena Aggarwal, professor of finance and director of the Georgetown Psaros Center for Financial Markets and Policy, stated.
Recent developments indicate a more welcoming environment for retirement investment in cryptocurrencies. Financials services giant Fidelity launched a crypto IRA account last month, allowing investors to direct retirement funds into popular cryptocurrencies such as bitcoin, ethereum, and litecoin. The Department of Labor rescinded previous guidance urging caution before investing retirement funds in cryptocurrency, instead adopting a neutral stance towards such decisions.
Institutional adoption of cryptocurrency may establish greater clarity and trust in the market, but the assets remain highly volatile, Aggarwal commented. "Institutionalization does make things less risky because it brings transparency," she said, clarifying the ongoing price fluctuations.
Despite significant gains in recent years, the price of bitcoin has experienced declines of at least 45 percentage points four times over a five-year period ending in 2024, according to Bryan Armour, the director of passive strategies research at Morningstar. While bitcoin has soared 1,043% over the past five years, far outpacing an increase of 94% for the S&P 500, experts caution that there are still no guarantees for crypto investments.
"When you buy crypto as an investment, you're betting that the value will go up, but there's no guarantee that it will, and in fact, prices can drop pretty steeply," Kate Ashford, an investing specialist at NerdWallet, commented. "It's a relatively new asset class, and even the experts aren't entirely clear on why crypto prices move around the way they do."
An account holder may find value in dedicating a small share of their portfolio to crypto, as long as they are prepared to lose the holdings in the event of a downturn, analysts advised. Digital assets can help diversify a portfolio and present the possibility of significant upside. Younger investors may find the asset more attractive, as they have a long-term opportunity to recoup possible losses, while older investors may face considerable risk.
"If things go south, they may not have enough time to turn it around," Aggarwal stated. "For younger people, there's still a chance to recover."
Investing a small portion of retirement funds in cryptocurrencies could offer potential for portfolio diversification and significant upside, given the skyrocketing price of bitcoin over the past year, despite its volatility. However, heavy investment in retirement funds is not recommended due to the substantial risks associated with cryptocurrencies, as analysts note. The price swings and lack of long-term predictability make retirement accounts vulnerable to dramatic losses.
