Bitcoin is the talk of the town at the moment thanks to its meteoric appreciation in price through 2017. It was only a matter of time until people started thinking of using their superannuation funds to buy Bitcoin. Aside from having missed the boat, the huge market volatility, and the lack of a regulated market, there is one obvious reason why Bitcoin is an unsuitable vehicle for investing your super in.

When considering any investment decision, you must make appropriate allowance for your expected time horizon, in other words how long will you be investing for. While most people chase strong returns in their super, they misunderstand the true power of compounding and consistency of returns.

The superannuation system was designed with the longest of time-frames in mind (an entire working lifetime) and it exploits the immense power of compounding. Small and steady growth is superior to large but volatile returns. Provided you are, at a minimum, exceeding inflation, you will be better off over the long term.

The Bitcoin and cryptocurrency markets more generally are highly speculative, highly volatile and still in their infancy as financial instruments. While we have seen huge gains in prices through 2017, your life savings shouldn't be tied to this rollercoaster of a market. To succeed in this way you are relying on timing the market perfectly which is difficult in any market and goes against the implicit passive approach of superannuation investing.

If you want to get involved with Bitcoin or cryptocurrency trading, use money you can afford to lose – rather than risking your retirement nest egg.

I think what's happening is people have seen the immense success of early adopters and want to get involved (that fear of missing out everyone keeps talking about) but using their super money doesn't impact their hip pocket or mean they need to compromise their lifestyle.

Now let's not forget that the only way currently to invest in cryptocurrency markets with your super money is to use a self-managed superannuation fund.  This comes with additional compliance, cost and regulatory scrutiny and given the nature of cryptocurrency (notably the anonymity of Bitcoin) there are risks of falling victim to early release schemes scams. The ATO will be watching this space very closely due to the high risks involved and I'm certain they will be imposing significant penalties for any breaches to act as a deterrent to others. To me, the risks simply do not outweigh the benefits.

As a final point, let's assume you take your entire super balance, buy Bitcoin and grow it by 1000%. Congratulations! Your super balance is now more substantial. But it's not like you have any access to these funds now. You'll have to wait until retirement, with your Bitcoin millions locked away. And I'm not sure how disciplined the average punter will be to make such a quick profit, cash out and then return to investing in more traditional assets for the remainder of their working life. And to remain invested in the crypto markets for the ultra long term is unproven and poses almost unquantifiable risks.

My tip is to keep your asset selections aligned to your investment goals. Recognise the job that you need your super to do and let things run their course. If you have a speculative venture you want to put money into, use money you can afford to lose.

Categories: Retirement Planning