Should crypto be a part of your overall investing strategy?

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Question: I’m 40, married with two kids and gainfully employed. I’m wondering how aggressively I should be investing in the market if I’d like to quit my job somewhat early. What should my portfolio diversity look like right now, and should I invest in crypto?

Answer: How aggressively anyone should be investing in the market is a function of a variety of factors such as how much you can save, the time that the investments can compound, how much you plan to spend when you retire, and your willingness to both take and bear risk. “Being more aggressive with your investments can mean taking more risks, which you may or may not be able to do,” says Jay Zigmont, certified financial planner at Live, Learn, Plan. (This tool can help match you with an adviser who might meet your needs.)

But taking calculated risks may be what you have to do if you want to quit your job soonish. “This means you may need to be more aggressive in your asset allocation. The term for this in the investing world is ‘there is no alternative’ (TINA),” says Matthew Jenkins, chartered financial adviser at Noble Hill Planning, who adds that “increasing your savings rate is paramount” as well. In your case, your savings rate may need to go well beyond the 10-15% that is traditionally recommended.

Have an investing question? Email [email protected] and we’ll ask a panel of CFPs to answer it for you. 

So what might it look like for a 40-year old who wants to quit working in 10 or 15  years? First up, think about what you want your post-work lifestyle to look like. Depending on how lavish or modest, pros say you may want to aim to have somewhere between 60% and 100% of your pre-retirement income available to you in each year of retirement; you can factor in Social Security when you start taking that as well, and don’t forget to note healthcare costs. Because you’re hoping to quit work sooner, you may want to assume you’ll withdraw 2-3% a year, rather than 4% a year. 

And, says certified financial planner Lei Deng, you’ll want to make all of your goals more concrete to help solidify these numbers. Ask yourself things like: “What age are you thinking about retiring? How much money do you expect to spend when you retire? What’s a rough estimate of your life expectancy? These questions can help you answer how much money you’ll need when you retire,” she says.

Should you use a financial adviser to help invest?

When it comes to how to invest your money to hit these goals, many people opt for a financial planner to help them — this tool can help match you with an adviser who might meet your needs — though that does come with a cost. This may come down to how comfortable you feel doing this yourself, and whether you like outsourcing financial decisions to others. Here’s a guide on what to ask any adviser you might hire, and here’s what you can expect to pay an adviser (but note that many adviser fees are negotiable).

If you decide to pick investments yourself, this guide on diversification and this one how to invest if you want to retire early, which highlights diversification and low cost funds as keys to success, can help. “Diversify across sectors, add 15 to 20 years and you could have yourself a nice income producing portfolio when you retire that keeps up with inflation,” says certified financial planner John Piershale of John Piershale Wealth Management, who adds that you will want high-quality, dividend-paying blue chip stocks with a history of increasing dividends in your portfolio as well.

Should crypto be a part of your investing strategy?

Many advisers say that most, if not all, portfolios should contain some alternative investments. “The 60/40 stock-bond portfolio has been under pressure lately and adding alternative investments is a good idea when looking to diversify,” says Josh Chamberlain, certified financial planner at Chamberlain Financial Advisors. But, beware of investing in any asset that you don’t understand, and the portion of your portfolio you put in alternative assets does not need to include crypto, though it could. Just remember that crypto’s “up and down swings can cause vertigo,” says Chamberlain.

Asking yourself what’s attractive about crypto, what the goal of having crypto in your portfolio is and whether it’s for diversification or for the return potential, can help determine whether you should invest in it. “If you’re a huge believer in crypto and already have a good portfolio in place to reach your goal then you could allocate a small portion to crypto that meets your comfort level,” says Deng. Ultimately, crypto is may be a wild ride. “There’s money to be made but you’ll need to do your homework and make sure you have ice water flowing through your veins. There will be plenty of ups and downs going forward,” says Jenkins. (This tool can help match you with an adviser who might meet your needs.)

Don’t forget to factor in taxes

Other things to consider are a tax plan, and where to save money. “If you withdraw funds from retirement accounts before age 55, there’s very few options you have to avoid the 10% penalty and taxes,” says certified financial planner Blaine Thiederman. So you will also want money in non-retirement accounts like a brokerage account. “The reason being is, if you want to withdraw from these accounts well before normal retirement age, you aren’t charged a penalty on withdrawals and can still benefit from some tax saving techniques,” says Thiederman.

Have an investing question? Email [email protected] and we’ll ask a panel of CFPs to answer it for you. 

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