The Bitcoin price has surged 150% higher in 2020. This could naturally make it more appealing than cheap UK shares to many investors.
However, the long-term prospects for a portfolio of FTSE 100 and FTSE 250 stocks could be more attractive. Their lower risks and recovery potential may mean that they offer a more impressive outlook.
As such, ignoring Bitcoin’s recent price rise and buying British shares may lead to superior retirement prospects for investors with a long time horizon.
Buying cheap UK shares for the long run
The stock market crash has left many cheap UK shares across the FTSE 100 and FTSE 250 indexes. Yes, some companies have rebounded since the market’s decline earlier this year. But weak investor sentiment caused by risks such as Brexit and the pandemic means that it is still possible to buy high-quality companies for less than they may be worth.
Over the long run, such companies could offer capital appreciation that outperforms other assets such as Bitcoin. The stock market has an excellent track record of recovery. The FTSE 100 and FTSE 250 have always bounced back from even their very worst declines to post new record highs. Similarly, the world economy’s performance is likely to improve as fiscal and monetary policy stimulus takes effect.
This could mean that buying cheap UK shares now produces high returns in the long run. They could move from being undervalued in today’s challenging stock market conditions. Eventually, they could be more fairly valued as investor confidence improves and operating conditions across many sectors strengthen.
The Bitcoin price rise
Of course, the declines of many cheap UK shares in 2020 are in direct contrast to the 150% Bitcoin price rise. As ever, investors may be attracted to the virtual currency because of its recent outperformance of the FTSE 100 and FTSE 250.
However, the virtual currency carries a number of major risks. Namely, its lack of fundamentals mean that it is not possible to work out its value. This means that investors may be overpaying for it. After all, it has a limited size and a lack of infrastructure that could inhibit its potential to replace traditional currency. There are also regulatory risks and competition from other virtual currencies that may limit investor demand for Bitcoin. The end result may be that it underperforms a basket of cheap UK shares. And it will also be higher risk than FTSE 100 and FTSE 250 stocks.
Building a portfolio
Clearly, it may take time for cheap UK shares to fulfil their potential. However, an investor with a long time horizon until they plan to retire, such as someone aged 40, is likely to have sufficient time to witness a recovery from the 2020 stock market crash. This could improve their long-term financial prospects and increase their chances of retiring early.