An oft-repeated piece of financial advice is to reduce the risk in your portfolio as you near retirement. On the surface, it makes sense. With fewer years left to work, a bad investment can be catastrophic; if your portfolio dips too close to retirement, you might not have enough time to make up for the losses or wait for a market correction. But, depending on your risk tolerance, you might still find yourself drawn to investments that are deemed riskier.

With new opportunities such as cryptocurrency and NFTs becoming more accessible, it’s reasonable to wonder how you can participate in these financial trends without risking your entire portfolio.

If you want to consider leveraging riskier investments as you approach retirement, here’s what to know.

Myth: Cryptocurrency is a bad idea

There are many reasons why your financial advisor might be cautioning you against investing in cryptocurrency. It’s still a highly volatile asset that comes with a major degree of risk. One of the major considerations is the role regulation will play in cryptocurrency over the coming years. But it’s also worth considering the risk of your cryptocurrency exchange being hacked or the fact that the crypto project you invest in might not succeed. Sure, you could make a lot of money — but you could just as easily lose it all. 

Despite these risks, many people are investing in cryptocurrency because they see crypto and the blockchain industry as a whole growing stronger, especially as major companies such as Square are facilitating purchases using cryptocurrencies. The time horizon for cryptocurrencies is long, and there are a lot of uncertainties, but this hasn’t been enough to scare away the nearly 16% of Americans who have invested in, traded or used cryptocurrencies, according to Pew research.

Still interested?

If you think investing in cryptocurrency is within the bounds of your risk tolerance, you should start by gaining an understanding of the pros and cons of the cryptocurrencies you’re interested in; not all cryptocurrencies are created equal. For example, Bitcoin and Ethereum are generally seen as more stable investments, while a novelty cryptocurrency like Dogecoin would be highly risky.

Arming yourself with detailed information on the various cryptocurrencies you’re interested in can help you reduce some risk when it comes time to invest. Using a dollar-cost averaging approach to make your investment can also help reduce your risk, especially if you are investing large sums.

Keep in mind, it’s also important to understand how your cryptocurrency investment could impact your taxes. As an example, if you bought one Bitcoin in June 2013, when one Bitcoin was valued at $100, and sold it in February 2022, when Bitcoin was valued at $44,101, you’d have to pay long-term capital gains on nearly $44,000. 

Myth: NFTs have no value

You might have heard the buzz about NFTs — non-fungible tokens — and wondered if this investment strategy is at least worth trying. NFTs are made possible by the blockchain, which verifies the ownership (and authenticity) of these digital assets. NFTs have become a trendy way for many to invest.

It can be difficult to determine the value of an NFT, especially if your understanding of the blockchain is murky. The value of an NFT is very closely tied to the value a buyer sees in it, which can be complex and unpredictable. But, that isn’t to say that NFTs hold no value. Consider that Beeple’s famous NFT “Everydays: The First 5000 Days,” sold for $69 million in a Christie’s auction. Just like a piece of fine art, the value of an NFT is largely in the market’s perception of it.

Still interested?

If you want to take the risk and invest in an NFT, you should take the time to learn who the creator is, how unique the piece is, who has owned it before and if it’s possible for the piece to generate income for you. You’ll also need to be comfortable using cryptocurrency, since a crypto wallet is needed to purchase an NFT. Conducting this research can help you reduce some of the risk of purchasing an NFT.

Keep in mind that a major risk for investing in an NFT is illiquidity. You could be stuck with your NFT for a while if you can’t find a buyer; not a great outcome if you end up needing the funds urgently for any reason. If you’re preparing to head into retirement and will be on a fixed income, you should have enough funds in savings that you’ll be OK in an emergency, even if you can’t sell your NFT.

Is the risk worth the reward?

Before making any investments — even the more stable ones — it is essential to assess your risk tolerance. Keep in mind that your needs are likely to change as you head into retirement, which could have a significant impact on how much you’re willing to risk (even if you were comfortable making aggressive financial moves in the past).

The answer might be that you want to invest just enough in new trends to experiment with them, but not enough that you’ve left yourself financially exposed.
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Jolene Latimer has her Master's in Specialized Journalism from the University of Southern California. She writes about personal finance, marketing and sports.