Is Fidelity a pioneer in the 401K space or an enabler? The 401K plan is designed to offer employees a prudent way to invest for their retirement. Investing in a 401K plan should be, by definition, boring. Bitcoin, the digital currency, is far from boring. It is a highly speculative, volatile idea that most investors do not understand. Now, they are going to get the opportunity to really risk their retirement savings.
Bitcoin has that element about it that screams “investment bubble.” It is considered a way to make investors millionaires overnight, when in fact, investors could end up losing a lot of money for lack of understanding of how that asset works. It has a definite greed factor about it.
Corporations are under the microscope when it comes to 401K plans and whether they are providing suitable investments for their employees. Employees are already filing lawsuits of all kinds against their employers for not being responsible fiduciaries. Bitcoin has what I would call “blow-up potential.”
One Fidelity vice president differentiates investing in Bitcoin outside of a 401K versus inside of a 401K. She
“sees that growing activity as reckless behavior that goes against the principles of prudent investing, Consumers are trading crypto now in a risky way that we’re concerned about. Fidelity is enabling consumers to do something that they’re already doing and in a more responsible way.”
It is like underage drinking. Teenagers are drinking out recklessly on their own. However, if they were allowed to have a party at a cool parent’s house who is monitoring the drinking, it is okay when in fact, it is still underage drinking.
Although Fidelity is going to limit investing into Bitcoin to 20% of the portfolio, my concern is the investors who have no business investing in cryptocurrency due to their risk level. This is great for those investors who understand risk and could deal with massive losses. For the other 90% of investors, this could end up being a disastrous experiment.
In the mid-1600s, tulips were considered to be the investment that was going to make people rich. Of course, just like every other speculative bubble idea, everyone ended up losing everything. Can you imagine the ability to invest in tulips in your 401K?