Coinbase Offers A New Way For Workers To Invest In Crypto With Their 401(k) Plan

IA deal that could change the retirement plan market forever can finally get a group of employees investing in cryptocurrency for their 401 (k) plan. Coin Base (COIN) has entered into an agreement with ForUsAll, a 401 (k) provider that allows workers to invest up to 5 percent of their 401 (k) contributions in Bitcoin, Ether, Litecoin, and other coins. ForUsAll is a startup founded in 2012 and a young player in the retirement provision market. It has just $ 1.7 billion in retirement assets versus the $ 22 trillion retirement plan market, but that may be the catalyst for future takeover by larger 401 (k) providers like Fidelity and Vanguard.

This is how it will work: Participants are limited to investing up to 5% of their balance in cryptocurrency. If the value rises above 5%, ForUsAll sends out alerts asking participants to rebalance their portfolios by selling some crypto and transferring the profits into stocks and bonds. In addition, if the balance of crypto holdings exceeds 5% of the total assets of a portfolio, an employee would not be able to transfer any further amount of their current balance to the portfolio.

This “security measure” gives Paul Selker, President of Spark Street Digital, the feeling of offering his employees the ForUsAll cryptocurrency option. “You will not let my people YOLO Dogecoin go to the moon” he said of ForUsAll. Selker believes that offering cryptos can be a tempting way to attract young investors to the stock market. Most of his employees are in their 20s and 30s, so he predicts that if they could invest in cryptos, they would “get involved” with the 401 (k) plan.

And that’s an important point. The old saying goes that the sooner a person invests, the higher the return they will later get. This is because it takes time for compound interest to work its magic. Finally Albert Einstein said: “Compound interest is the eighth wonder of the world. Whoever understands it deserves it. If you don’t do it, you pay for it. “

Unfortunately, young people under 35 are the least likely to own stocks in the stock market – although this age group is the most critical time to invest. Here is the graphic from Pew Research Center:

94 percent of crypto buyers are between 18 and 40 years old. according to style. So making crypto for 401 (k) could be an important step in getting more younger people involved in investing. The partnership also democratizes access to modern allocation strategies. The biggest problem with the current 401 (k) plan is how it falls behind high-performance allocation strategies. You’re often limited to the same strategy your grandparents used by popular stock brokers (like Vanguard or Fidelity) – mutual funds or exchange-traded funds. Yes, there is a reason for the limitation. It is designed to protect investors from amateur mistakes.

However, this strategy may not be the most sensible way to invest as the financial world is simply different than it was 20 years ago. For example, the value of assets managed by hedge funds skyrocketed by 3,136% from 1997 to 2020. according to Statista:

Assets in hedge funds

If we look at the most respected institutions we will find that almost all of them have adapted to the changing landscape by allocating capital in the alternative investment areas such as ESG funds, private equity, real estate and even crypto. For example, Harvards Endowment Fund has an allocation in hedge funds (36.4%), private equity (23%), stocks (18.9%), real estate (7.1%), cash (5.6%), bonds / TIPS (5.1 %), Raw materials (2.6%) and other tangible assets (1.3%). 401 (k) plans, on the other hand, invest only 1% of their assets in private equity and 2% in hedge funds, according to the defined contribution Institutional Investment Association.

As a result, wealthy institutions have access to alternative investments that can offer higher returns, while regular investors are limited to mutual funds and ETFs. ForUsAll, who manage plans for companies like Target, Coca-Cola, and Citigroup, said on his website that “6 out of 10 institutional investors believe that digital assets have a place in their portfolio and 36% are already using them.”

Bottom line: Institutions are following the trend by allocating a percentage of the capital to cryptocurrencies, and the partnership of Coinbase and ForUsAll is a groundbreaking move towards providing everyday investors the same opportunity to build wealth through modern financial investments as institutions.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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