Bitcoin’s decline of over a third in the last four months highlights the volatility and uncertainty that holding the virtual currency can bring.
Furthermore, its lack of fundamentals and concerns about its size and infrastructure could mean that it fails to deliver capital returns that are in line with many investors’ expectations.
As such, buying a portfolio of FTSE 100 shares could be a better idea. They offer a strong track record of growth, with a large number of them appearing to have wide margins of safety at the present time.
Bitcoin risks
The price of Bitcoin is exceptionally difficult to accurately predict. A key reason for this is that there is no data for investors to analyse, since it lacks fundamentals and its price is based upon investor sentiment at a given time. This can lead to wild swings in its price, with investors not knowing whether it offers good value for money at a given level.
In addition, the virtual currency faces an uncertain future. Its limited size and lack of infrastructure may mean that it ultimately fails to replace traditional currencies. This could lead to disappointment for investors that causes a difficult period for Bitcoin’s price, since an expectation that it will become a mainstream currency may be included in its current valuation.
With there being a range of other virtual currencies that could become increasingly popular and mainstream, the prospects for Bitcoin continue to be very risky.
FTSE 100 potential
The FTSE 100 also faces risks that could negatively impact on its performance. For example, a global trade war, political risks in the US and economic weakness in Europe may weigh on its near-term prospects.
However, a fall in the index could mean that it offers better value for money. Its history shows that buying high-quality stocks while they trade on low valuations has proven to be a successful means of generating high returns over the long run. As such, the current uncertainty among many investors may present a buying opportunity for those long-term thinkers who are able to live with the potential for short-term paper losses.
In addition, the index’s dividend yield of over 4% indicates that it offers good value for money. This may mean that it is possible to generate above-average returns over the coming years.
Compounding
Clearly, making a million from the FTSE 100 is likely to take a sustained period of investing. But the impact of compounding can lead to surprisingly high returns. It may take several years to have a noticeable effect on your portfolio valuation, but continued high-single-digit annual returns could lead to a seven-figure portfolio.
Since the index has a solid track record of growth and comes with less risk than Bitcoin, now could be the right time to buy FTSE 100 stocks – especially when many of them offer wide margins of safety.