The outbreak of the coronavirus pandemic and the subsequent stock market crash sent financial markets into disarray. Asset prices tumbled across the board as investors scrambled to pour money into safer investments. In this context, finding the best investments for 2020 is pivotal when it comes to growing wealth over the long term.
For many, investing money in Bitcoin can be a wise idea. However, I’m confident that in the long run, buying high-quality UK shares is a superior investment choice for 2020 and beyond. Here’s why.
The drawbacks of investing money in Bitcoin
Since the beginning of September, the price of Bitcoin has fallen by around 10%. Granted this is nothing for long-term investors to stress over, it illustrates the volatility of cryptocurrency valuations. In fact, it’s not rare to see price fluctuations of around 20% in a short time frame.
But why does that matter? Well, it demonstrates how the valuations of cryptocurrencies are driven entirely by investor speculation. Given there’s no way to determine the intrinsic value of Bitcoin, its price fluctuations are subject to general market sentiment.
Moreover, having now been in circulation for 11 years, Bitcoin’s real-world utility has yet to be realised. Many would argue this isn’t an issue for the virtual currency, but in my view, it undermines the credibility of Bitcoin as a serious long-term investment. For now, the virtual currency remains a purely speculative asset.
The advantages of investing money in quality UK shares
On the contrary, the same can’t be said for investing in high-quality British shares. Thanks to the various metrics that can be used to evaluate a stock (such as the P/E ratio), it’s possible to build up a picture of the market value and worth of a given company. This enables investors to make better-informed decisions, which explains why I’d reserve the core of my investment portfolio for traditional shares and funds, rather than alternative assets such as Bitcoin.
What’s more, in the aftermath of the stock market crash, many companies are trading well below their average historic valuations. This indicates that now could be an ideal time to hoover up shares at discounted prices. That way, as market sentiment improves over time, you’ll reap the rewards for plunging in where others refused. As legendary stock-picker Warren Buffett once said, “be greedy when others are fearful”.
Once you’ve invested in a diversified selection of shares, it’s important to hold them for the long term. In doing so, you’re better positioned to take advantage of the wonders of compound returns, key to growing a large investment pot.
Ultimately, through a combination of share price appreciation and dividend reinvestment, it’s entirely possible to grow a sizeable amount. In the long run, I reckon you’d even have a higher chance of generating superior returns than investing in Bitcoin.
With that in mind, when it comes to finding the best investments for 2020, I’d stick to buying quality UK shares over pouring money into Bitcoin.