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Should You Include Bitcoin in Client’s Retirement Portfolios?

Should You Include Bitcoin in Client’s Retirement Portfolios?

In this video, Chief Investment Officer Mark DiOrio, CFA discusses whether advisors and retirees should consider incorporating Bitcoin into their retirement portfolios, referencing Fidelity's recent white paper titled "The Case for Bitcoin." He highlights the potential benefits and risks of allocating Bitcoin in retirement portfolios, suggesting a cautious approach with allocations ranging from zero to 5%, depending on the investor's risk profile. He emphasizes diversifying and aligning Bitcoin investments with long-term financial goals. Mark also discusses the accessibility of Bitcoin investments through ETFs, drawing parallels to the introduction of gold ETFs in the past. Additionally, he touches upon the concept of Bitcoin halving and its potential impact on Bitcoin's price, emphasizing the need for careful consideration and prudent portfolio management.


Erin (00:04):

Should retirees incorporate Bitcoin into their retirement portfolio?

And I'm asking of course, because Fidelity recently published a white paper titled, The Case for Bitcoin. Here it is. I know you've seen it. So I want to talk through this paper considering Bitcoin has recently been trading around its high of about $70,000. According to Fidelity, Mark, and again, there are a lot of different variables here, a lot of visuals too. A 2% allocation to Bitcoin could allow for an increase in annual spending ranging from 1% to 4% and potential losses of up to negative 1% in a worst-case scenario. Now here, a 5% Bitcoin allocation could allow for an increase in annual spending by as much as 9.5% for older investors, but with much more steeper potential losses of up to 3% in a worst-case scenario. So again, considering these stats and scenarios, Mark, do you think a retiree or pre-retiree should incorporate Bitcoin into their retirement portfolio?

Mark (01:17):

Well, it's great to be back with you, Erin, and talking about this topic is really interesting with new data coming out and new ways to invest in Bitcoin as well. So I think the data really does make an argument that you can have a place in Bitcoin, but be aware of the risks that it has. So if you're uncomfortable with the investment, you don't have to make it. But if you're talking about a zero to 5% allocation, and maybe on the higher end, if you're a younger investor, thinking long-term, and then as you are in the retiree camp, a lower allocation, that makes sense.

Bitcoin is a volatile asset. No one can be certain of where Bitcoin is going from week to week or month to month, but it can have a role in a portfolio. And I think it's important to point out, it depends what else you have in the portfolio. So as long as you built a solid core portfolio allocation that's consistent with your risk profile, if you want to add a little piece of a different type of investment, Bitcoin being one of them, I think it does make the case that you can do that.

Erin (01:17):

How should investors evaluate the role of Bitcoin in terms of diversification, risk management, and alignment with their long-term financial goals?

Mark (02:30):

Our overall portfolio allocation framework is based on a core plus satellite allocation design. So the idea is just as I mentioned, you build a core risk appropriate portfolio, and then the satellite allocations are what you can use to add different elements to your portfolio, to either gather a little bit more growth in that portfolio or a little bit more income in that portfolio using satellite allocations. But it fits really well with where you would fit Bitcoin, for example.

And Bitcoin is a diversifier in the sense that it's marching to its own drummer. It has its own ebbs and flows. So anytime you have an asset that has a lower correlation to traditional stocks and bonds, it can add diversification benefits. Bitcoin happens to be a very volatile asset, so it'll come and go with the relative performance. But as long as you know that and know that it's a longer-term type of investment, I think you can place it in the appropriate allocation percent and the appropriate bucket in your overall portfolio.

Erin (03:28):

So again, you're hitting on this theme, but I want to ask it again. What is the separate advice for retirees versus pre-retirees? You're saying it's volatile, so to me that says, as a retiree, I shouldn't rely on it for income or need to tap it for money.

What is the separate advice for retirees versus pre-retirees?

Mark (3:43):

Correct. So you'd say in that range, we think zero to 4% type of allocation. And again, if you're a retiree and you're not comfortable with it, you don't have to allocate it to it at all. But if you'd like a little percent of the portfolio, a 1% allocation, it's hard to make a case that a 1% allocation would be detrimental, as long as you've built a solid core portfolio that's consistent with your risk profile.

Erin (4:10):

So you mentioned how Bitcoin has been in the headlines a lot lately, also because investors have been pouring money into new spot ETFs, and most of us assume that investing in ETFs carries less risk. Does investing in a crypto ETF make sense for retirees?

Does investing in a crypto ETF make sense for retirees?

Mark (04:25):

Well, so I think what the advent of the ETF, the Exchange Trade Fund has done is really allowed access through traditional portfolio accounts at qualified custodians. Those are the big major players where most investors have their assets, whether it's the retirement plans or their investment account. Prior to that, you'd have to open up a digital wallet or deal with other third parties that may not have been really not part of the mainstream investment world and that has led to some trouble. FTX, for example, went bankrupt and had a fraud.

Prior to that, you had something called Mt. Gox, which was an exchange that also ran into trouble as well. So those are different third parties. Here now, the ETF gives you access in a traditional account to essentially allocate a piece to that. Not unlike gold years ago where in 2004, late 2004, the gold ETF Exchange Traded Fund came onto the market, which allowed investors to put a piece of their portfolio in a traditional, fully liquid, fully transparent manner into that portfolio. So this is really making it an allocation to Bitcoin accessible to most investors.

Erin (5:35):

So the Bitcoin message boards are talking a lot about the halving that will happen in April. What does that mean exactly, and what do you think that will mean for its price?

What does that mean exactly, and what do you think that will mean for its price?

Mark (5:48):

So the Bitcoin halving, as it would be called, would be that the amount of Bitcoin mined or brought to market per day is going to drop in half, so this is hard coded into the Bitcoin software code. So it started with issuing about 7,200 Bitcoin per day. That lasted four years, and then it was cut in half, and then another four years, and then another four years. And so now we're going to drop from 900 Bitcoin being issued per day to 450. So the supply coming to the market is going to drop in half essentially, and that's part of the Bitcoin thesis that the supply is controlled and it's not adjusted based on the price like other commodities may be, where if the price rises, well, producers are incentivized to produce more and to bring more to market to sell it at those elevated prices.

Erin (06:41):

My goal in life, Mark, is to stump you one day. I'm going to get there. This was really interesting, Mark. Though, I appreciate your take on this. I think a lot of people were anxious to hear how you would respond to that white paper, so I'm really glad that we had this time today to talk it through.

Mark (6:56):

Great. Thanks, Erin.


Investing in digital currency comes with significant risk of loss that a client should be prepared to bear, including, but not limited to, volatile market price swings or flash crashes, market manipulation, economic, regulatory, technical, and cybersecurity risks. In addition, digital currency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing.

For a complete description of investment risks, fees and services, review the Brookstone firm brochure (ADV 2A) which is available from your Investment Advisor Representative or by visiting

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