Is Bitcoin a good investment? Many people seem to think so. The Bitcoin price is currently trading around $18,322, and its market capitalisation is at an all-time high of $336bn. There’s definitely plenty of hype surrounding the cryptocurrency with many people confident that, as it finds mainstream acceptance, it’s value can only go up. However, as a way to invest £10k, gambling on the Bitcoin price is highly risky.
What if the price is at the top of another peak? What if people don’t accept Bitcoin as mainstream currency? What if… ? What if…? So many questions. Although many of these may also apply to FTSE-listed companies, unlike firms, Bitcoin has no intrinsic value. So, its price is based purely on the quantity of it demanded, meaning my chance of making any money, let alone a million, is based on others believing it’s worth more than I do. And at current prices, surely there can’t be that many? But, I’m guessing.
Consequently, if I could choose how to invest £10k, I’d forget the Bitcoin price and look elsewhere for something less risky.
Forget premium bonds too
If some of my friends had £10k to invest to try and make a million, they tell me they’d stick it into NS&I Premium Bonds. Premium Bonds are the UK’s biggest savings scheme where the monthly interest due to you, the saver, is determined by a monthly prize draw. Moreover, you won’t lose your money, rising inflation notwithstanding.
The top prize is £1m. Not bad interest if you can get it. And therein, lies the problem. The chance of winning this amount of interest on one £1 premium bond is 1 in 48,733,655,950. By comparison, the probability of winning the lottery is a much better 1 in 45m.
So, Premium Bonds are definitely less risky than Bitcoin but they’re also unlikely to make me that million. There must be a better way.
How to invest £10k? The FTSE 250
Alternatively, I could invest in FTSE 250 firms. Over the last five years, the index has produced a return of around 14%. If it carries on like this, I could put £10k in a tracker fund, wait about 35 years and voila! My million. Or, I could add a little each month to the initial £10k, hopefully resulting in making a million sooner.
Investing in a company is not like buying Bitcoin. You’re putting money into a real entity that produces something useful, like food, clothing, or vaccines. You can also assess each firm on how it’s doing relative to its peers and give it a monetary value. You can access information to help you make these judgements, lowering your risk of losing money.
After emerging from a stock market crash, and with the promise of a Covid-19 vaccine, FTSE-listed firms should be anticipating generating real revenues once again. Increased revenues often mean larger profits and the prospect of good returns, whether from income or capital gains. It’s a great time to invest. So, forget Bitcoin. I’m putting my £10k into firms on the FTSE 250 to make a million.