Editor’s note: Before we get into the details, it’s important to point out that cryptocurrencies are higher risk than traditional financial assets. They are at an early stage in their adoption cycle and therefore volatile. Investing in them is a high-risk investment and you should always do your own research.
Sydney, July 5: KiwiSaver is New Zealand’s trusted go-to for retirement planning, known for its steady growth over the long haul.
On the flip side, Bitcoin and other cryptocurrencies are often seen as wild, short-term investments. Despite these differences, some fund managers think it’s a mistake to completely write off Bitcoin for KiwiSaver portfolios.
Rupert Carlyon, Founder and Managing Director of Kōura Wealth, explains why mixing KiwiSaver with Bitcoin could be a smart move if you’re disciplined.
KiwiSaver is a long-term investment, with many people holding onto their investments for over 35 years.
This long horizon matches up well with Bitcoin’s four-year cycles of Bull, Bear, Accumulation, and Expansion.
Understanding these cycles helps investors take a broader view of Bitcoin’s ups and downs.
Investing in Bitcoin as part of a long-term strategy within KiwiSaver lets you potentially benefit from these cycles.
It minimises the risks of high-risk, short-term trading and leverages KiwiSaver’s extended investment horizon to ride out volatility and capture significant gains.
A key goal in building a strong investment portfolio is diversification—spreading out investments to balance risk.
Bitcoin can actually make a KiwiSaver portfolio less volatile because it doesn’t move in sync with traditional assets like stocks and bonds.
Adding a small amount of Bitcoin to a KiwiSaver portfolio can help smooth out the market’s ups and downs.
According to portfolio theory, a 3-4 percent allocation of Bitcoin is ideal for maximising the balance between risk and return without making the overall portfolio too risky.
As of June 18, 2024, the weekly correlation for the past year was -0.2 percent between the MSCI AC World and Bitcoin.
Bitcoin is still young compared to assets like gold and stocks, presenting unique opportunities for significant gains.
The recent launch of a Bitcoin exchange-traded fund (ETF) in the US has attracted over $13 billion in investment, showing confidence in Bitcoin as a store of value and hedge against inflation.
With gold valued at US$15.6 trillion and all Bitcoin at US$1.3 trillion, Bitcoin could either grow exponentially or lose its value entirely.
Allocating a small percentage of KiwiSaver’s growth assets to Bitcoin positions investors to potentially reap big returns.
Investing in Bitcoin through KiwiSaver requires careful planning.
Funds like Kōura limit Bitcoin investments to 10 percent of a KiwiSaver portfolio, higher than the optimal three percent but acknowledging that some may want to invest more.
It’s crucial to stay the course with Bitcoin, despite its significant swings.
A long-term, strategic view is essential, and rebalancing regularly by reallocating gains from one asset class to another can help manage risk.
Kōura investors, for example, have seen their $5 million Bitcoin investment grow to $7.5 million since May 2022 and have moved $2.3 million of these profits into other funds to realize gains while reducing risk.
Australia could consider adopting this approach by integrating Bitcoin into its superannuation funds.
The potential for diversification, long-term gains, and low correlation with traditional assets makes a compelling case.
However, it’s crucial to approach this with caution and ensure investors understand the associated risks. Cryptocurrencies are highly volatile and not suitable for everyone.
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