The finally clients fessed up: “We’ve got 60% of our nest egg in crypto...”
The clients finally fessed up: “We’ve got 60% of our nest egg in crypto...” That issue lit up a recent review with a couple fast approaching their retirement. We opened their financial plan and marked down the value of the Bitcoin and other crypto holdings to simulate an unexpected sharp sell-off in digital assets coinciding with an extended bear market in stocks. Unsurprisingly, the probability of funding their projected 30-year retirement dropped. And not by a little…
Crypto
Seeing those numbers shift in real time drove home how being overly aggressive can seriously undermine a secure retirement and leave people with very unwelcome potential consequences. Together we mapped out a game plan:
a clear understanding of their current spending and formulation of a reasonable budget;
a plan to hold near term living expenses and adequate emergency funds in FDIC-insured online savings;
a bond ladder to cover multiple years of spending needs over the early retirement period, just in case markets turn sour or trade sideways for an extended period of time;
an optimal Social Security claiming strategy to maximize benefits and to boost the percentage income coming from guaranteed sources (and with some level of cost-of-living protection built-in);
a reworking of their portfolio to add in a mix of less richly-valued overseas developed and emerging market stocks;
a plan to add in a meaningful allocation to diversifying hard assets like precious metals, just in case;
and a clear, disciplined cap on the future crypto/digital exposure.
As an advisor, diversifying clients and managing risk isn’t about dulling returns and being a killjoy; it’s about helping put retirement on a much surer footing for an uncertain world. Don’t get caught up in the moment, whether that’s euphoria around AI stocks/data centers and robotics, biotech, digital assets or anything else...
If the only way your retirement plan works is if Asset X or Investment Y keeps going up and up and up, or if you keep your high paying job indefinitely, then please consider carefully! And this is especially so if the bulk of your working years are behind you, retirement is fast approaching and the prospects for earning income are uncertain. Clients frequently underestimate the chances of an adverse health outcome for themselves or a loved one, or the possibility of being laid off during the height of their highest earning years.
If you’re barreling towards retirement with account values currently riding high, and without a healthy dose of respect for what could potentially go wrong, then that’s a recipe for heartache, or worse yet, disaster. Don’t get greedy and don’t let your crypto (or your concentrated stock position…) become your Kriptonite.
Each client situation is unique, and no investment or asset class is necessarily appropriate for any individual client.
#Retirement #RiskManagement #Crypto #Bitcoin #FinancialPlanning
