Tap into dollar cost averaging over the long term to take advantage of bitcoin’s volatility
I have a lot to share with you in the topic of crypto on this week's show, but the biggest news of all in this area, Fidelity has announced that they're going to allow workers to buy Bitcoin in Fidelity 401(k) plans. This is big news because Fidelity is the nation's largest provider of 401(k), they have a third of the market. 23,000 companies use Fidelity's 401(k). They manage $4.5 Trillion for over 12 million workers across the country. And now those workers are going to be able to buy Bitcoin with a fee of three quarters of 1% to 0.9% per year, a very competitive fee when you compare that to a lot of ETFs and mutual funds. MicroStrategy has already signed on. Other employers are flocking to Fidelity. Bitcoin is going to be an offering just like mutual funds in the 401(k) - you'll be able to invest no more than 20% of your portfolio. And a lot of people are asking, is this a good idea or a bad idea?
The Department of Labor came out and said that they are not happy about it. They said they have grave concerns about Fidelity's proposal. That just demonstrates that the Department of Labor doesn't know what it's talking about in the world of investment management. Here's the fact: Bitcoin is perfect for 401(k) plans. Why? Think about it.
Consistent, systematic investing can build wealth over time
How is it that you invest when you join a 401(k)? You don't invest in a single lump sum. You don't take $10,000 and plunk it down into the investment, do you? No. You have a very small investment with each paycheck, 1% or 2% or 5% or 10% of your pay comes out of your paycheck and goes into your 401(k). A little bit of money out of every paycheck, with every paycheck, every two weeks. That is called dollar-cost averaging.
Everybody knows that dollar-cost averaging is the most successful investment strategy ever because you're not investing in a lump sum. You're not investing today only to watch the market crash tomorrow. When you're dollar-cost averaging, you're buying shares based on the shares current price. If the price is high, you don't get very many shares. If the price is low, you get lots of shares. In other words, dollar-cost averaging helps you create the most cost efficient accumulation of assets of any other methodology available. This is why so many people create so much wealth in their retirement plan at work. Consistent, systematic investing over the course of your entire career. This is so exciting, especially when you recognize that if you want to make dollar-cost averaging work best, you need to use the most volatile investment you can find - an investment whose prices fluctuate wildly. They go up a whole lot, down a whole lot with a great deal of frequency.
Let volatility work to your advantage
I was just telling you about all the stock market and bond market mayhem that we've been experiencing. Well, think about it. It wouldn't make any sense to dollar cost average into a bank savings account, where the share price is always a dollar. If there's no fluctuation, you're not getting any benefit from dollar cost averaging. So you need to use an account that fluctuates wildly. Traditionally, that means the stock market, because that has been the most volatile investment that you could find until crypto came along.
Now that we have crypto, we look at the price of bitcoin. It's far more volatile than even the stock market. And although that's ordinarily scary for people investing a lump sum, it's wonderful for dollar cost averaging. The volatility works to your advantage. And since you're doing dollar cost averaging in a 401(k), the 401(k), is ideal for investing in Bitcoin. And not only that, you get all the tax benefits too. You're getting those investments on a tax-deductible basis. The profits grow on a tax deferred basis, and with an awful lot of employers, they're doing an employer match. They're literally giving you free bitcoin.
Ric’s prediction: Bitcoin in a 401(k) as a recruiting tool
Here's my prediction. By the end of this year, you're going to see employers touting bitcoin in their 401(k), as a recruitment tool to help them attract talented workers. Come work for us. We will give you free Bitcoin as part of your 401(k), plan in the employer match. This is great news.
For the Department of Labor to say they have grave concerns because they're fearful that most Americans don't understand Bitcoin and they might lose money by investing in it, just demonstrates that the Department of Labor doesn't understand investment management. They also don't seem to be willing to acknowledge that 20% of US adults already are investing in Bitcoin, and these folks would love to now be able to do it in a tax deferred way by virtue of their employer 401(k), plan. DOL is way out of step on this and Fidelity has just stuck their finger into DOL's eye. Congratulations to Fidelity. If you work at a company that offers the Fidelity 401(k), ask your employer to add bitcoin to the offering. And if you work at an employer that doesn't use Fidelity, talk to them about having your 401(k), provider add bitcoin too. Fidelity is doing it. Pretty soon every 401(k) provider will do the same.