Today, there are several investment options for people. You can choose to invest in houses, cars, precious metals, bonds, stocks, and any other thing you can imagine. It is best if it secures your capital and provides you with profit.
There are several reasons to invest. While some people might invest towards funding a new business, others might invest to save towards retirement.
Talking about retirement; for some of us, our dream is to retire at 45 years old on an island, own a yacht and a duplex, and sunbathe on the beach. Dreaming is good, and it is best to have aspirations. However, these things may not come to be without an investment plan.
There are several ways to save towards your retirement. You can choose to invest in a retirement plan like an IRA or save the money in a bank. However, the former is best as the rules help you maintain a strict saving habit.
An IRA is an independent retirement account that enables workers and self-employed persons to save towards retiring. Furthermore, there are several types of IRAs. However, some people prefer self-directed accounts because you can invest in different assets like crypto, precious metals, real estate, and more.
Crypto IRAs are gradually becoming popular. With the trend in bitcoin, almost every investor wants a slice of the cake. However, ensure that you read about the company before investing. You can read reviews of iTrustCapital to know more about Bitcoin IRAs.
Investing your retirement savings in bitcoin can provide you with high returns and help you diversify your portfolio. However, you should note that cryptocurrencies generally have high trading volatility. Hence, they are very risky. We will guide you through the basics of investing in cryptocurrencies for your retirement.
Bitcoin IRA – What It Is
As we have earlier said, you can invest in a cryptocurrency like bitcoin using your IRA. However, you must have self-directed (SD) retirement accounts that allow you to invest in various assets.
Crypto IRAs function like others but, the only difference is investing in crypto instead of shares. You can open any of the account types- traditional or Roth. In addition, every contribution rule still applies to the account. You can click on https://www.sec.gov/ to read about the self-directed account rules.
Three key players help you run your account smoothly. They include:
Custodians
A custodian is a vital player in your IRA investment journey. They hold your account and keep it safe while ensuring that it is up to IRS (Internal Revenue Service) standards. Some custodians include banks, brokers, financial trust firms, etc.
Exchanges
These players are vital especially, for crypto investors. Exchange helps you manage your crypto trades and functions just like the global stock market. On an exchange platform, you can buy or sell your cryptocurrencies.
Secure Storage Facility
A storage facility helps you to secure your crypto assets. Since cryptocurrencies are decentralized, there is a need for stringent security protocols. Hence, they aid you to keep them safe from theft.
Bitcoin IRAs – Opening Your Account
Opening a crypto retirement account is not hard. However, you will need to find a reliable company. You may do that by researching or asking your friends for suggestions.
Before settling for any company, ensure you compare their rates and fees. You can schedule a meeting with a company representative. Then, you can ask all your questions.
After choosing a company to invest in, registration regularly involves filling out a form online or at their office. However, you will need to submit some documents for further verification.
Advantages of Investing Your Retirement Funds in Crypto
Investors can make wealth from investing in crypto. Some of the benefits of crypto investments include:
Diversification
When building a portfolio, you can add assets that do not correlate with bonds and stocks and, one such asset for you is crypto. Since cryptocurrencies like bitcoin do not correlate with bonds, they are best for risk management. Though they might be volatile, they can also help reduce risk. You can read this article to know more about volatility.
High Returns
The volatile nature of crypto makes it a possible source of higher profits. For instance, in 2020, we saw bitcoin move from $5,200 to about $30,000. The move made investors over 600% profit in one year.
Tax Advantages
Crypto traders generally face difficulties meeting up with taxes imposed on them. However, investing with an IRA helps to cover you from taxes. Hence, you enjoy the tax advantages of the account for the period of your contract. Additionally, you also benefit from long term compounding values of your account.
Disadvantages of Investing in Crypto
Investing in cryptocurrencies has some disadvantages. Some of them include:
Higher Fees
Self-directed IRAs usually have higher charges when compared to conventional IRAs. However, before opening your account, you can ask about the fees from your provider. It will help you prepare for whatever it takes.
Exchange Limits
One downside of cryptocurrency investment is the restriction placed on trading on some exchange platforms. Some IRA firms do not affiliate with some exchanges. Therefore, it is best to check if your broker allows the exchanger you intend to use.
Volatility
Volatility can be a basis for high profits. For instance, we saw an increase of over 400% in profit in 2020. This alone is enough to make some investors wealthy.
But, in 2017, there was a crash in bitcoin prices from $20,000 to about $3,400. Such moves can be dangerous for investors, especially those near retirement. Therefore, understanding risk management is necessary.
Complexity
Besides handling exchanges, secure storage, and custodians, you may need to own another retirement account. Because crypto IRAs cannot hold other assets like bonds or stock. So, if you choose to add them to your portfolio, you might need to open another account. And, it might be tasking.
Loss of Capital
The effects of high volatility can cause a total loss of your capital. However, you can avoid this by understanding how the market functions and how to manage your risk.
Conclusion
Investing is a decision everyone needs to make earlier because it prepares a better life for you. You can invest in several things like real estate, bonds, precious metals, and others. However, ensure that you research before investing.
Investing in crypto has several benefits as well as disadvantages. However, you can manage the risks with proper management strategies. Ensure that you invest with a reliable firm.
