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Addendum – a young journalist speaks out against Bitcoin.

Laura Miller wrote this over four years ago. I read it then and took it to heart; what do you think?

Cryptocurrencies are the hottest investment in town – fast moving, furiously hard to predict, and fun (at least while going up). They’re also very high risk. If you’re ready to take more risk to chase higher returns, changing your pension could be a much easier first step.

Cryptocurrencies: the risks

Bitcoin, Dogecoin, SafeMoon – just a few of the cryptocurrencies to excite investors with recent eye-watering returns that make traditional investments seem less enticing. Younger investors are particular fans of cryptos and other high risk investments, according to research by the Financial Conduct Authority. The thrill of investing and status from ownership fuel their decisions, rather than making their money work harder, or saving for the future.

But risky investments can cost you everything – nearly two thirds (59%) of those polled by the FCA said a significant investment loss would have a “fundamental impact on their current or future lifestyle.”

Investing can be fun, but with highly volatile investments like cryptocurrencies the fun can soon stop when the price falls heavily overnight, and to less than you initially paid for it.

Pensions are much easier to manage as a long-term investment. A globally diversified pension pot should make regular, steady gains over decades, setting you up for a happy retirement.

How can I invest for higher returns?

More investment risk means a higher chance of better returns – but also losing it all.

For example, investing in a company listed on the UK’s main index, the FTSE 100, is riskier than keeping your money in cash in the bank. But investing in Dogecoin (where the price fluctuates wildly from day to day), is much riskier than investing in a well-known and highly regulated FTSE 100 company.

A way to manage risk is to invest for the long-term. You have time to make back short-term losses, and can benefit from compounding (where if you reinvest your returns, they get bigger and bigger over time in a snowball effect).

Because pensions are a long-term investment, in a well diversified portfolio you have the option to invest in some higher-risk investments and have time to weather any short-term fluctuations they experience. So you may improve your chances of making higher returns in the longer-term.

More traditional higher-risk investments include:

• Emerging market equity funds (that invest in the stock markets of developing economies, like China and Brazil)
• Property
• Commodities such as precious metals or coffee
• Smaller company AIM listed company shares (the Alternative Investment Market is made up of smaller, often newer companies, that are less established and more lightly regulated than those on the Main Market of the London Stock Exchange)
• Foreign exchange funds
• Green energy funds (investing in companies developing new ways to harness solar, hydro or wind power, for example)
• New technology funds (such as artificial intelligence investments, or hydrogen batteries)

Diversification is key – it’s very unlikely you’d want all of your money invested in any one of these assets alone but a mixture, based on how much risk you’re willing to take.

You’d also probably want to have some of your money in lower-risk government bonds and cash – though if you’re in your 30s or 40s, it isn’t outrageous to be fully invested in different types (and risk levels) of company shares.

Workplace pension too low risk?

Many employees are auto-enrolled into their default workplace pension fund. These are designed to be suitable for the largest number of people across the ages of a workforce. For this reason, default workplace pensions have often been split around 60% in higher risk company shares, and 40% in lower risk government bonds and cash.

Younger investors, with decades of investing ahead of them, may want to consider whether that’s the right mix for their long-term savings goals. In this scenario they could miss out on the potentially valuable returns that a higher risk fund might offer (for example, by being invested in 100% company shares).

Even pension savers in their 50s may want to consider waiting before reducing their exposure to riskier assets until eight or so years before they want to retire.

Investors’ risk checklist

The FCA advises investors consider five questions before investing in any type of asset:

1. Am I comfortable with the level of risk?
2. Do I fully understand the investment being offered to me?
3. Am I protected if things go wrong?
4. Are my investments regulated?
5. Should I get financial advice?

Taking on a bit more risk with a long-term investment like a pension is one way of potentially improving your chances of higher returns, without taking extreme risks on an asset as volatile as Bitcoin.