Retirees: Bitcoin Is Not Gold, Do Not Bet the Portfolio

Bitcoin (CRYPTO: BTC) is building a reputation as the digital equivalent of gold. U.S. Treasury Secretary Scott Bessent has said, "Gold is a store of value, Bitcoin is becoming a store of value." Like gold, Bitcoin is considered an excellent long-term store of value. It's scarce, relatively secure, and its value increases over time. All good things.

In fact, its performance is so good, it's been called the better store of value. There's some truth to that. If you'd invested $1 into Bitcoin five years ago, you'd have approximately $9.50 as of writing. Bought gold instead? You'd have roughly $2. Compared to gold, Bitcoin has made like a balloon and flown sky-high.

But it would be a big blunder to mistake Bitcoin for a better gold. Stability matters. Right now, Bitcoin is to gold as dynamite is to a rock: volatile. Retirees, in particular, should be cautious about betting the portfolio. An unlucky downswing could blow up your entire retirement plan.

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The $1,000,000 Bitcoin example

It's probably too risky to bet tomorrow's withdrawals on Bitcoin.

To illustrate (with a dramatic example):

• January 2020. Retired but actively managing your portfolio, you watch with wide eyes as Bitcoin breaks records. It climbs to stratospheric heights, minting Bitcoin millionaires. The FOMO is strong, but you're afraid of buying at the peak. You wait for a dip.
• January 2022. Bitcoin has fallen from its high to $50,000, where it seems to have hit a floor. You pull the trigger and buy the dip. You're in -- at a steal of a deal. Meanwhile, you continue to withdraw 4% of your portfolio annually to cover retirement expenses.
• January 2023. The floor has caved. After a brief rally, Bitcoin has plunged to $16,000, cutting your investment by two-thirds. Unfortunately, you can't wait for the rebound -- you have annual expenses to cover. After painfully withdrawing 12% of your portfolio to cover expenses, you move out of Bitcoin, taking a major loss.

This dramatic example of Bitcoin maximalism illustrates the importance of stable portfolios. Bitcoin goes up long-term, but short-term, it's unstable.

That's an issue when you're retired. Retirees depend upon withdrawals to pay the bills. Say you sit down with a retirement planner and block out consistent 4% withdrawals. A single big downturn, one that shaves the cost of your portfolio by 50%, would force you to withdraw 8% to cover the same fixed expense that once cost you 4% of your portfolio. Diversification into 25+ stocks (and stable assets like gold) helps ensure that your 4% remains 4%, even during downturns.

Gold is good, gold is great

Gold is a good way to diversify a retirement portfolio. It almost always goes up, and when it draws down -- as every asset is bound to do -- it does so in a slow and reasonable manner, relative to the stock market. There are two reasons for this: gold is a stable asset, and it tends to rise when the stock market declines.

Gold is stable. Three points that support the fact:

• Average annual gold prices have gone up since 2015.
• The price of a gold bullion rose absolutely from 2020 to 2025.
• Drawdowns are slower and milder than Bitcoin.

Gold prices tend to rise. Had you bought $1,000,000 of gold (instead of Bitcoin) on January 1st, 2020, your investment would have remained above $1,000,000 when the market fell. In fact, regardless of when you withdrew, you'd have profited. When gold prices dip, they do so in a slow and mild manner. It hasn't dipped even close to 50% in the last decade.

Gold is insulated from stock market woes. When the market declines, gold typically rises. Owning both gold and stocks prevents your portfolio from falling off a cliff, regardless of whether there's a recession or a stock market boom. A bit of both keeps you stable during both good and bad times.

So, where does that leave Bitcoin?

Make Bitcoin the five, 10-year bet

In bad times, Bitcoin bites -- but it appreciates much faster than gold over long time horizons. (Think five, ten years.) That's why Bitcoin deserves a small place in your retirement portfolio. I'd keep any Bitcoin addition small enough that I wouldn't feel compelled to withdraw it for at least five, ten years. Making it a long-term play gives the volatile currency time to appreciate. Gold is for stability; Bitcoin is for optional upside.

Cole Tretheway has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.