If you’d invested even a small sum of money in Bitcoin when it first became available, you’d have a vast wealth right now. However, the same thing could be said for a wide range of investments, including those found in the FTSE 250.
Looking ahead, the mid-cap index could offer a strong rate of growth in the coming years. It also provides investors with the chance to diversify to reduce their overall risk.
As such, it appears to offer a superior risk/reward opportunity compared to Bitcoin, and may be a better means of building a £1m+ portfolio.
Return prospects
Since the FTSE 250 generates around half of its income from the UK economy, its near-term prospects appear to be relatively uncertain. Brexit may have taken place, but investors could soon turn their attention to the transition period and the prospects for trade deals with the EU, US and other major economies.
This may cause a degree of uncertainty in the minds of investors, and could prolong the trend of the past few years where UK-focused stocks have been relatively undervalued. This, though, may present buying opportunities for long-term investors.
With the UK economy forecast to grow at a faster pace in 2020 than in 2019, and with economic data such as employment levels and inflation relatively favourable, UK shares could deliver higher earnings growth than investors are currently pricing in.
Furthermore, the FTSE 250 has a strong track record of growth despite facing numerous challenges in its history. It has recorded an annualised total return of 9% over the past 20 years. When compounded over the long run, this can produce significant returns that may lead to a seven-figure portfolio.
Risks
Investing in the FTSE 250 enables an investor to diversify away company-specific risk. This is the threat of one company’s poor performance impacting negatively on the wider portfolio. Although the potential for a downturn in the wider stock market still remains from having investments in the mid-cap index, the track record of the FTSE 250 shows it has always recovered from its downturns to post new record highs.
The risks involved in buying Bitcoin could prove to be significantly higher than those of the FTSE 250. Diversification isn’t possible when it comes to buying the virtual currency, while its limited size and regulatory challenges may mean that it fails to ultimately replace traditional currencies. This could hurt investor sentiment, which may lead to a disappointing price performance in the coming years.
Furthermore, with Bitcoin impossible to accurately value, investors may be better off buying undervalued FTSE 250 shares at present. They could enjoy a wider margin of safety and, when combined with the past performance of the index, could mean you have a better chance of generating a £1m portfolio over the long run.