With cryptocurrencies like Bitcoin and Ethereum on the lips of nearly every investor and in newspaper headlines seemingly every day, you might be wondering whether you should make cryptocurrency part of your retirement portfolio.

Does it make sense to add digital currencies to your holdings? If you think it does, how do you buy some? This primer will help you — and your investment advisor — weigh the pros and cons of cryptocurrency and make the right decision on how to invest for retirement.

Pros and Cons of Investing in Cryptocurrency

Cryptocurrency can be a payment tool and store of value that could redefine how people think about money, and some early investors have seen impressive growth. With institutional investors and individuals becoming more familiar with the currency, the volatility in these investments could become less intimidating, too.

Cryptocurrencies can also add an asset class to your holdings, which could help you diversify. It's increasingly easy to invest in cryptocurrencies, especially with evolving products designed for retail investors. However, there are currently no freely available exchange-traded funds that anybody can buy in a brokerage account.

Cryptocurrencies are relatively new, so it's difficult to evaluate how they fit into a retirement portfolio. And so far, investments have been volatile. You'll need a high tolerance for risk if you're going to put a portion of your life savings into them.

Besides market risk, there might be additional risks, depending on how you invest. Unlike brokerage and bank accounts, which offer consumer protection and insurance from theft, there's no federal consumer protection for directly held cryptocurrency. If you lose your password or your coins get stolen, you might be out of luck.

How to Add Cryptocurrency to Your Holdings

There are several ways to buy cryptocurrencies. You can buy coins directly on dedicated exchanges or through popular apps. However, those services might not work with your retirement accounts.

You can also use a self-directed individual retirement account (IRA), which lets you put your retirement funds in assets beyond the traditional stocks, bonds and mutual funds, to invest in cryptocurrencies. Ask your self-directed IRA provider for specific instructions on how to invest for retirement using cryptocurrencies.

If you're less adventurous, you could get exposure to cryptocurrencies through traditional brokerage accounts and IRAs that allow trade in over-the-counter markets. You won't have the same level of control and could face several hurdles on that route, but the process could get easier in the coming years.

When Might Cryptocurrency Make Sense?

For long-term investors with an appetite for risk, it could make sense to invest in cryptocurrencies and hope for gains. With so many currencies to choose from, it's impossible to predict which will succeed and which will fail. As with any investment, consult a financial advisor first, choose your investments carefully and consider diversifying.

If you can't afford to lose money, even in the short term, cryptocurrencies might not be worthwhile. The value swings have been large and unpredictable, and big swings can wreak havoc on your retirement strategy.

As you think about historical gains and volatility, remember that past performance does not guarantee future results. Any growth would help you keep up with rising prices. But any significant losses, especially at the beginning of your retirement, could drain your nest egg.

If you decide to invest in cryptocurrencies, consider dedicating only a small portion of your portfolio. Then decide how to buy these assets and evaluate your portfolio periodically to ensure that you're on the right path. Speaking with an investment professional or financial advisor can help you make the right decision for your retirement needs and goals.