As a result of the major sell-off in equities, many investors have fled the volatility of the stock market to seek refuge in alternative assets such as gold and Bitcoin. But are these stock market alternatives a superior way to build wealth over the long term?
Gold
The price of gold has recently come within touching distance of all-time highs. As a safe-haven asset, its price is usually pushed up during uncertain conditions. However, gold has no yield and the only return you’ll get is from selling it in the open market.
That said, for many investors, there’s certainly a place for gold in a well-diversified portfolio. The reason being, gold has a history of holding its value and acts as an effective inflation hedge. Moreover, in times of geopolitical uncertainty and stock market volatility, it can be beneficial to have some exposure to gold.
However, investing in gold right now would involve buying at the top. Don’t get me wrong, this isn’t an issue for investors in it for the long run, but I think there are better ways to build capital.
Bitcoin
Would that be Bitcoin, I hear you ask? Well, I’m not so sure. As is the case with gold, the virtual cryptocurrency has performed well since the market crashed. That said, it’s worth noting that along with share prices, the price of Bitcoin plummeted in March by around 46%. Since then, however, it has far outperformed both gold and the FTSE 100 index.
For me, the main drawback concerning Bitcoin is that its price is determined purely by speculative supply and demand. Given the absence of underlying cash flows, it’s impossible to determine the virtual currency’s intrinsic value. Therefore, nobody can say that Bitcoin is either overvalued or undervalued at any one time.
What’s more, the future of the virtual currency is far from certain. After 11 years in circulation, Bitcoin is still not widely accepted. Ultimately, an overhaul of the world’s financial system will be required if Bitcoin is to play a part in everyday transactions.
Stock market crash bargains
It may not seem so at the present time, but investing in stock market crash bargains could be the best way to make a million. While volatility looks set to plague the stock market in the short term, the long-term outlook for shares remains favourable.
In the past, the market has always recovered from crashes and subsequently gone on to reach new highs. Moreover, if the FTSE 100 index continues to replicate historical returns of 8% per annum, investors could have a tidy sum after a few decades.
For example, after 35 years of investing £500 a month, you’d have an investment worth £1,078,202! What’s more, outperforming the index with a diversified selection of individual shares would mean reaching this sum in a shorter time frame.
As such, out of the three assets discussed so far, I think FTSE 100 stock market crash bargains could be the best way to build wealth over the long term.