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SmartMoney Podcast: ‘Is Bitcoin Safe?’

May 26, 2020
Personal Finance
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Welcome to NerdWallet’s SmartMoney podcast, where we answer your real-world money questions.

This week’s question is from a listener who asks, “Is bitcoin a safe investment? And do you recommend it?”

Our take

There’s nothing safe about investing in bitcoin and other cryptocurrencies. You can lose a lot of money and there’s no guaranteed return.

Consider what happened with bitcoin in just a one-year span. In December 2017, one bitcoin was worth more than $20,000. A year later, the value had plummeted to $3,000. It’s been up and down ever since. Plus, there are other risks. You could lose your investment to hacking or fraud. Also, cryptocurrency is still in its infancy and there’s no way to tell which version, if any, will prevail.

All investments carry risks, of course. Even super-safe investments such as Treasury bonds can lose value over time, since the interest rates paid may not keep up with inflation, which erodes buying power. If you want returns that beat inflation over the long term, NerdWallet recommends a diversified portfolio of stocks — specifically, low-cost index funds. That’s where the vast majority of investors should be, rather than trying to beat the markets or taking a huge gamble with their retirement money.

If most of your money is invested sensibly and you still want to try more speculative investments such as trading futures or buying bitcoin, prepare for a steep learning curve. Also make sure you risk only a small portion of your portfolio — definitely less than 10% — and be prepared to lose the entire amount.

Our tips

Before you invest in anything, establish your goal. If you’re trying to build wealth or fund a retirement someday, low-cost index funds are the way to go. If your goal is to have fun and speculate with a small amount of money, you could invest in crypto.

Don’t go overboard. Keep speculative investments to less than 10% of your portfolio.

Safety and high returns don’t go together. If you can’t risk losing your principal, consider money market accounts, high-yield savings accounts and certificates of deposit.

Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, return to the podcast homepage.