Some 401(k) savers soon can plunk a portion of their nest eggs into cryptocurrency.
Starting in July, ForUsAll Inc., a 401(k) provider, will let workers in retirement plans it administers to invest up to 5% of their contributions in the leading cryptocurrencies through Coinbase. The news was first reported by the Wall Street Journal.
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"When we created our institutional platform, our initial focus was making cryptocurrency accessible to institutional investors and high net worth individuals,” Brett Tejpaul, head of institutional sales, trading, and prime at Coinbase, said in a statement to Yahoo Money. “The next evolution is to broaden our reach and we are thrilled to be working with ForUsAll to expand access to cryptocurrency through 401(k)s.”
This is only the beginning of mainstream crypto investment as a retirement strategy, according to David Ramirez, co-founder and chief investment officer of ForUsAll.
“There has been an absolute sea change in the investment world in the last few years with institutional professional investors making increasing use of alternatives, and more recently digital assets,” Ramirez told Yahoo Money. “Most individual investors don't have access to the same opportunities, nor the means to make good use of them. We're changing that.”
It may be too early to tell whether this is an industry-wide turning point or one-off phenomenon. ForUsAll manages 401(k) plans for just 400 employer clients, representing $1.7 billion in retirement-plan assets. That’s a small slice of the $22 trillion market.
The bigger players haven't jumped into crypto fully. Vanguard doesn’t allow customers to directly hold crypto through a Vanguard account, a spokesperson told Yahoo Money. Fidelity also doesn't allow direct investing in digital assets on its retail brokerage platform.
No employers using Charles Schwab’s 401(k) platform provide crypto investments in their core investment menus “at this time,” a company spokesperson said.
But some companies can offer a self-directed brokerage account in their Schwab 401(k) plan that allows investors to invest in over-the-counter cryptocurrency coin trusts such as Grayscale’s Ethereum and Bitcoin Trust products.
“Likewise, Schwab offers IRA clients the opportunity to buy/sell Grayscale products in their IRAs," the spokesperson said.
Among financial planners who help clients formulate a retirement savings plan, crypto is slowly gaining steam.
About 14% of certified financial planners currently use or recommend cryptocurrency, up from less than 1% in both 2019 and 2020, according to a survey of 529 professionals by the Financial Planning Association.
More than a quarter of advisers said they plan to increase their use or recommendation of cryptocurrencies over the next 12 months. And almost half of advisers said their clients had asked them about crypto in the last six months, up from 17% in 2020.
“Clients have definitely asked about crypto a lot lately,” said Christopher Lyman, a certified financial planner with Newtown, Pennsylvania-based Allied Financial Advisors, noting it’s mostly younger clients with fewer assets who are inquiring. “I always try to get them to disconnect from the headlines and astronomical numbers they see and try to remember the basics.”
Scott Hammel, a financial planner in Dallas for Apeiron Planning Partners, has a different take.
“If a client is accessing crypto, they are adding it as a very small portion of their portfolio in a side account, like Robinhood, and considering it volatile play money,” he said. “It hasn't been a mainstream addition to their long-term portfolio.”
ForUsAll also isn’t trying to mask the asset’s volatility and attempts to curb risky behavior by limiting investments to 5% in contributions and alerting investors when their crypto investments exceed 5% of their account balance. Investors also must acknowledge reading disclosures explaining crypto’s volatility.
We “cannot change the fundamental nature of cryptocurrency,” Ramirez said. But the firm can educate investors “on the common pitfalls and mistakes that people often fall prey to when investing.”