Cryptocurrency is hot these days, and despite its volatility and the fact that many people don’t quite understand it, many investors still want to know if they should invest in it. Financial advisors are getting calls, even from retirees and pre-retirees, to ask if cryptocurrency should be a part of their portfolios.

The short answer is no, financial planners say. The risk is too high for most, but especially retirees and pre-retirees.

Exercise Caution

“There’s definitely a level of curiosity,” says Alex Reffett, principal and founder of East Paces Group in Atlanta, Georgia. “Everyone’s brought it up. But we are not advocating that anyone who is already prepared and established in their retirement invest in an asset that has that level of volatility.”

“Cryptocurrency is the currency of choice for computer hackers extorting companies like Colonial Pipeline.”

“Our goal is not to find the newest hot micro-cap stock to triple our client accounts overnight,” Reffett says. “Our strategy is building wealth consistency over a long-term basis group. Cryptocurrency just don’t fit what we’re trying to accomplish.”

But what is it?

Cryptocurrency is a digital currency, that – like paper currencies – can be used to buy goods and services. There are an estimated 10,000 different cryptocurrencies, but the most popular is Bitcoin. Others are Ethereum, Dogecoin and Binance Coin.

Regulators in the U.K., Japan and Canada have recently blocked one cryptocurrency exchange, Binance, from operating in those countries. Meanwhile, according to Forbes, the U.S. Justice Department and the IRS are investigating Binance because of concerns that the platform is being used for illegal activities or to evade taxes. Cryptocurrency is the currency of choice for computer hackers extorting companies like Colonial Pipeline.

Why is Cryptocurrency popular? 

Despite the volatility and the controversies, cryptocurrency remains popular for several reasons. Some like the fact that it is unregulated and not controlled by central banks. Also, proponents like the security of blockchain, the technology behind cryptocurrencies that manages and records transactions.

“Many financial experts warn that cryptocurrencies are not a safe investment.”

Still others see it as the currency of the future. Sotheby’s said it will accept cryptocurrency for an online auction of a piece of digital artwork to commemorate the 25^th anniversary of Reasonable Doubt, Jay-Z’s first album.

And of course, there are the speculators.

Too risky for a legendary investor…

Many financial experts warn that cryptocurrencies are not a safe investment. Legendary investor Warren Buffett is not a fan. “I don’t own cryptocurrency and I never will,” he said in an interview with CNBC last year.

“They don’t reproduce, they can’t mail you a check, they can’t do anything,” said Buffet, “and what you hope is that somebody else comes along and pays you more money for them later on…but then that person has got the problem.”

…or you?

Clark Kendall, president and CEO of Kendall Wealth in Rockville, Maryland, says he does not recommend it for his clients.

“I just don’t see the future cash flow from a cryptocurrency.”

“I believe all investments boil down to a return a cash flow and predictability of the cash flow,” says Kendall. He said he was reminded of the tulip bulb lessons in financial analyst training. “We all had to read the article about tulip mania. The value of owning tulip bulbs is that you can plant them and have a beautiful garden. But as far as a medium of exchange, there’s no value of having a sack full of tulip bulbs. I just don’t see the future cash flow from a cryptocurrency.”

“So, I kind of caution against buying the Bitcoin and Dogecoin in the marketplace because all investments boil down to a return a cash flow and the predictability the cash flow,” he says. “Cryptocurrency doesn’t get a dividend and you don’t get interest from it.

But he does see possible value in investing in the infrastructure. “I do think the whole blockchain is a real item,” he says. “I would be more inclined to own companies that are a participant – participating in the infrastructure of the digital currency than actually owning the digital currency itself.”

Rodney A. Brooks writes about retirement and personal finance issues. His column currently runs in U.S. News & World Report. He has written columns on retirement for The Washington Post and USA TODAY. He has also written for National Geographic, Next Avenue and Black Enterprise magazine. He retired as Deputy Managing Editor/Personal Finance and retirement columnist for USA TODAY in 2015. 

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