The panelists also discussed the recent announcement by Fidelity that it plans to offer bitcoin as an investment option in its 401(k). Morningstar’s senior vice president of business development, Carla Paxton, who moderated the panel, said although this will allow investors who have most of their money in a 401(k) the opportunity to buy, there are potential pitfalls.
Hume said from an investor’s point of view, it is difficult to find parallels to another asset class in terms of volatility. Fidelity’s allowance of crypto in 401(k) runs up to 20%, and it will be up to plan sponsors whether they accept that maximum upper ceiling or whether they set their own, she said.
“But a 20% allocation of cryptocurrencies in a 401(k) from our view is widely inappropriate,” Hume said. “Once you get above 2%, it can eclipse the majority of your volatility contribution. So, if you have a 60/40 portfolio and a 2% allocation in bitcoin, that’s 50% of your volatility right there.”
Sethi pointed out that the interesting thing about Fidelity’s announcement is that it came shortly after the Department of Labor issued guidance on crypto in 401(k) accounts. “Looking at that guidance, it’s very hard to imagine plan sponsors actually taking Fidelity up on this,” she said. “Time will tell.”