Why crypto isn't 'a reliable investment' for retirement

Financial Advisor at Wealthstream Advisors Katharine George joins Yahoo Finance to discuss the best strategies for employees who want to invest in retirement if their employers don't offer a standard 401(K) plan.

Video transcript

BRIAN CHEUNG: We've had many segments here on Yahoo Finance about how to strategize with the traditional 401(k). But what if your employer doesn't offer a traditional 401(k)? For that, we've got Katharine George, financial advisor at Wealthstream Advisors to help answer that question. And Katharine, I guess the natural response here would be there are IRA options that you could go to instead. Give us the breakdown, though, on why you might even have more options within that option.

KATHARINE GEORGE: Yes, so there are a couple IRA options, but the limits are so low. When you look at how much you can contribute to your retirement with a traditional 401(k), you can do much more in savings than you can with these IRA options. But something is better than nothing. So you have your traditional IRA, which is pre-tax money. That means that you're getting a deduction. You're not paying taxes on this contribution. But when you pull it out in retirement, you're going to pay taxes on it then.

And you also have a Roth IRA. And that means that you're contributing with after-tax money. So you're going to pay taxes on that contribution now. And when you pull it out in the future, all of your contributions and your earnings are going to come out tax-free, which is really powerful if you're starting to save for retirement early. You're going to save a lot on taxes on those earnings.

JULIE HYMAN: And Katharine, it's Julie here. So when you are deciding what to do with the money in the IRAs, whichever kind you choose, you know, how should you be thinking about-- should you be thinking traditional 60-40? Should you be thinking in different ways about how you're putting that money to work?

KATHARINE GEORGE: So the first step is putting the money to work in general. You know, a lot-- I've seen a lot of people putting the cash in the account and stepping away. With the traditional 401(k), an employer offers options, so you have a limited set of investments. With these types of accounts, you have unlimited options. You can invest in any type of mutual fund or ETF that is offered. So it can be a little bit overwhelming.

My general advice, because everybody is different and everyone has different needs and goals with this money, but generally speaking, as long as you're investing in global stocks and bonds, really diversified, meaning you're investing in lots of different types of companies, lots of different types of markets, that's a great step.

For young people, it might be more appropriate to have a lot more stocks than bonds if any bonds at all, because you have such a long time until you need to pull from this money. You're not able to pull it out until 59 and a half without being penalized. So there's a long time to weather the ups and downs of the stock market. So it is a bit tailored to every person.

But as you near retirement, it might be a better idea if you need to pull from this money to tailor down that risk of stocks and bonds. But it could be discussed with a professional to figure out what your goals are, what your needs are, and what is an appropriate stock bond mix.

BRIAN SOZZI: Well, Katharine, I'm glad you're here. Help me out because I've had folks ask me recently, should they be pulling money out of their retirement savings and dabbling in crypto? I'm not a financial advisor. What would you be advising these folks?

KATHARINE GEORGE: So crypto is, of course, a hot topic. And any trend or thing that is booming, people want in on. The problem is that it's not a reliable investment. So putting in a large portion of any of your savings, whether it's retirement savings or savings outside of retirement, having a large portion of crypto or anything that's volatile is risky. And you could lose it all.

So my general advice is, if you want to invest in these types of volatile investments, put in an amount that you're willing to lose. But I would not bank my retirement on it. And pulling out from your savings towards retirement from a retirement account, one, you'll have tax consequences, potentially tax penalties to do so if you're under the age of 59 and 1/2. And it's risky.

BRIAN CHEUNG: All right, well, in that case, I won't put all of my savings into Dogecoin. Katharine George, financial advisor at Wealthstream, thanks again.