This Crypto ETF Could Help Grow Any Retirement Account

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Trying to predict Bitcoin’s next price move is probably not the best way to build long-term wealth. But we are seeing more and more cryptocurrency related products that have gained considerable attention. Here, we’ll take a look at an interesting fund for those who are too risk-averse to owning crypto, but are still interested, curious, and optimistic about the blockchain space as a whole.

The bottom

A low cost index fund portfolio, in most cases, is the smart choice for your core portfolio. Here you can include passive investments like the Vanguard Total Stock Market Index Fund and the Vanguard All-World ex US Fund. But once you’ve established a solid core, you may want to consider adding one or more themed funds as long-term games.

Enter Amplify Transformational Data Sharing ETF (NYSEMKT: BLOK). The fund invests 80% of its assets in companies focused on the “development and use of blockchain technologies”. The fund is a bit pricey at 0.71%, but it also offers extreme convenience by bundling the best blockchain companies into one stock. The fund’s 47 holdings contain well-known names – like PayPal and Square – but also some of the more specialized companies in the blockchain space, like HIVE Blockchain Technologies.

3 main reasons to invest in the fund

Even for the most casual passive investor, Amplify’s blockchain exchange-traded fund (ETF) is attractive for several reasons.

First, the fund’s investment thesis deals with blockchain as opposed to any cryptocurrency. Needless to say, investing in a thematic ETF that has many companies focused on a general idea will diversify your risk well. Anytime you own a single business – or in the crypto world, a single currency – you are exposed to the ups and downs of this unique position. If you’ve been following a cryptocurrency for awhile, you already know that ups and downs can be both quick and significant. By holding an ETF, the likelihood of experiencing a catastrophic loss is reduced.

Second, you remove the added risk of owning a cryptocurrency directly. You may have heard the horror stories of fortunes being lost due to a missing security key or a malicious hard drive gone missing. When you buy an ETF on an exchange, you don’t have to worry about storage or security beyond that of the broker through which you purchased the product. It can help allay investor fears of losing everything with crypto.

Third (and that might not be a valid reason for some people to invest), it’s fun. It’s nice to have a skin in the game as we see emerging technologies evolve, and based on the degree to which we have seen blockchain technology develop so far, we have every reason to believe that l space will continue to expand. The best thing about expressing this point of view through an ETF is that it doesn’t require any ongoing maintenance on your part, and you can just buy and hold for the long term – a silly philosophy indeed.

Image source: Getty Images.

Where to hold it

Since the fund prides itself on its growth potential, your Roth IRA could be an attractive place to hold it. Remember that a Roth IRA contains after-tax money that will never be taxed again (assuming the account has been open for five years). If your investments increase significantly in the future, you will have a tax free nest egg in your Roth.

Alternatively, the fund would still operate in a 401 (k) plan or other work plan, but your plan is unlikely to allow you to buy thematic ETFs. You can also buy the fund in a taxable brokerage account reserved for long-term expenses, although you are taxed periodically on gains made as well as dividends received or reinvested.

A great way to dive into the world of crypto

Amplify’s blockchain ETF is a compelling choice for those interested in the blockchain and cryptocurrency space but don’t want the added risk or volatility of directly owning the cryptocurrency. Lots of people are probably in this camp – a camp that will almost certainly gain more members in the years to come. If you find yourself able to allocate extra cash to stocks, take a look at this thematic ETF.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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