Can Bitcoin help you in Early Retirement Planning?

Bitcoin has done remarkably well in the last few years. Inspite of its volatilities and gut-wrenching price crashes, it’s still up thousands of percentage. And given the attention that instant Bitcoin millionaires get, it is natural for many to think about how Bitcoin can help their retirement too. Some investors even believe Bitcoin can help them retire early!

So should you include Bitcoin in your retirement portfolio?

The potential for astronomical returns is tempting many of India’s F.I.R.E. followers looking to accelerate their financial independence or early retirement.

So how are the prospects of Bitcoin in the future?

Say if you hold Bitcoin for 10 years or 20 years or 30 years?

To be honest, I don’t know.

If it does well, you will rue not having taken a shot at it. If it goes down and you didn’t invest, then you will pat your back on not being greedy and making a huge mistake.

But if past price behaviour is any indication of what the future might be, then a sure thing that Bitcoin can accelerate your retirement plan (depending on how much you allocate to Bitcoin in your portfolio). But there is no guarantee of that happening. Your Bitcoin bet can bow up as well.


Can Bitcoin help your Early Retirement Planning?

It can. 

Is investing in Bitcoin a good retirement strategy?

It might be. But by how much will depend on how much of your retirement portfolio do you invest in Bitcoin. Is it 1% or 2% or 5%. And how Bitcoin does after that is what will decide whether it helps or hampers your early retirement plan.

Cryptos are risky. Have no doubts about this.

And you might suffer from recency bias but don’t expect your cryptocurrency investment to continue surging as they have done in past. You cannot get 100% or more returns every year for very long.

If you are serious about financial independence and early retirement, then first you need to get the basic right. Remember the secret is to reduce expenses. It sounds simple and primitive. But this is the real secret to accelerate your early retirement. I would advocate first you make sure to stick to the tried-and-tested methods of disciplined investing in equity and debt.

And only then think about cryptocurrency investing for retirement.

Let’s say you are 27 and want to retire early at age 40. You do some retirement planning maths and find out that for the next 13 years, you need to invest Rs 1 lac per month at an estimated return of 10% to reach your target retirement corpus at the age of 40. Till now you were investing in 60% Equity and 40% Debt for this. But given the rise and rise of Bitcoin (BTC), you are now tempted to ride this profitable wave.

So how can you go about it?

If you have sufficient surplus, then I would suggest not to reduce your existing investments of Rs 1 lakh per month SIP. Let it continue as it is. To explore things first on the crypto front, invest a few thousand* and get used to the volatility of the space. It’s not like the equity market’s rise and fall. It is far sharper. 30% fall in a matter of hours and 80% annual falls aren’t impossible. But again, a 500-5000% rise in some other smaller Altcoins is also normal. So get a hang of it first. And then, if you are fine with it and are serious about it, then gradually scale it up to 1% of your portfolio size. So for an overall portfolio of Rs 75 lakh, you can scale up your Bitcoin/Crypto investment over a period of time to Rs 75,000, which is 1% of Rs 75 lakh.

*Start by only investing as much as you can afford to lose without worrying about it too much.

Do not make the mistake of relying solely on cryptocurrency to achieve financial independence. It’s possible and you might hope and pray for it, but hopes and prayers aren’t good strategies. Don’t be too influenced by the Bitcoin-hugging Billionaires.

Many crypto bashers and critics say this amounts to gambling rather than investing as this asset is far too volatile. And they may be right. Hence, if your risk appetite allows investing a very small sum in Bitcoins, only then bring it up to 1% of the portfolio. And what if critics are right and cryptos go down to zero? You will still have 99% of your portfolio safe. A 1% allocation isn’t going to materially harm you. The worst-case scenario of you losing 1% will not derail your financial goal planning or stop you from achieving your financial goals.

I know this is not what your Bitcoin-excited ears might want to hear, but you should think twice before adding Bitcoin or Ethereum to your retirement plan. Currently, cryptocurrency is far too volatile and speculative to bank your entire retirement plan on. Some short-term traders look at it with short time horizons and as a source of 1K Daily Profit or other profitable day-trading approaches. But retirement is another animal. It’s not like short-term trading.

So can you retire early without Bitcoin?

Ofcourse you can. People have been retiring (early) even before Bitcoin was here. Here is one story of how a smart investor did mutual fund SIP to create multi-crore retirement portfolio.

You will hear both views all the time like “Bitcoin Should be Part of Your Retirement Plan” and also “Bitcoin Should NOT be Part of Your Retirement Plan”. But eventually, it’s up to you. If you want to retire rich, then you need to think for your own self. No one can do it for you.

You need to figure out how Bitcoin fits in your retirement portfolio. And don’t be greedy. You might make a huge mistake. Remember that retirement is an extremely critical goal and you only get one shot at it. You can’t really make mistakes with it.

There are even talks of adding Bitcoin to 401K plans for some people in the US (link)

Now whatever figure you decide to invest in Bitcoin for retirement, remember that at the end of the day, it’s like really trying to answer the question – How Much of Your Retirement Portfolio Are You Willing to Risk?

Many people in developed nations are looking at Bitcoin seriously as Bonds aren’t giving them any returns. As the legendary investor Warren Buffett (who is also against BTC) says in his 2021 annual letter – “And bonds are not the place to be these days. Can you believe that the income recently available from a 10-year U.S. Treasury bond – the yield was 0.93% at yearend – had fallen 94% from the 15.8% yield available in September 1981? In certain large and important countries, such as Germany and Japan, investors earn a negative return on trillions of dollars of sovereign debt. Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.”

Some investors even believe Bitcoin can help them retire early! And these are mostly the young generation. For the younger generation, there is a natural affinity for cryptos and Bitcoin. Unlike equity and debt which have been here for decades, Bitcoin to these young investors seems to be of their generation and seemingly, gives them a new chance to get ahead. But still, it’s wrong to think of it as a lottery ticket and not something to be ‘all-in’. Some people did get very lucky with Bitcoin who invested in its early stages. But you can’t rely on luck alone for a successful retirement.

Can Bitcoin accelerate your early retirement plan?

Yes, it can.

But whether you should include Bitcoin in your retirement portfolio or not is something that you need to think very carefully about.

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