Investing £20k in shares instead of Bitcoin may seem like a strange move to some investors right now. After all, the prices of many FTSE 100 and FTSE 250 stocks are still significantly down on their 2020 starting prices. Meanwhile, the Bitcoin price rise has accelerated so that the virtual currency is up around 175% year-to-date.
However, on a long-term basis, a portfolio of UK shares could offer less risk and greater return prospects than Bitcoin. As such, it may be a better means of improving an investor’s chances of getting rich and retiring early.
Investing £20k in shares today
The historic returns of the FTSE 100 and FTSE 250 show that investing £20k in UK shares today could lead to a larger nest egg than Bitcoin over the long run.
Both indexes have historically delivered total annual returns of around 8%. Assuming the same return on a £20k investment today would lead to a portfolio valued at around £435,000 over a 40-year time period.
However, the 2020 stock market crash has left many UK shares trading at cheap prices. As such, they may be able to deliver higher returns than those of the wider index over the long run.
Since they’re starting from a low base, and stock valuations tend to revert to their long-term averages over time, their potential to deliver capital gains over the coming years seems to be high.
For example, investing £20k in UK shares such as BP, Sainsbury’s, BAE and Aviva could produce impressive returns. All four companies, and many others, have low valuations at the present time, as well as refreshed strategies to improve their financial performance. Over time, they could lead to a larger portfolio value within a basket of diverse UK stocks than Bitcoin.
Avoiding Bitcoin’s risky outlook
While UK shares can turn a £20k investment into a genuine retirement portfolio, Bitcoin faces a far less certain future. The stock market has always recovered to post new highs, but the price of Bitcoin could come under severe pressure if regulatory risks come to the fore. Or alternative virtual currencies become more popular.
Moreover, Bitcoin’s price rise is based on improving investor sentiment. Unlike shares, it has no fundamentals, such as profit or asset values, to support its price level. As such, it would only take a change in attitude among investors to severely dampen its recent price rise.
As such, investing £20k, or any other amount, in undervalued UK shares seems to be a more prudent move. Certainly, they could underperform Bitcoin and other assets in the short run, depending on how the economic picture changes.
But their solid fundamentals and track record of growth over a very long time period indicate they offer superior risk/reward opportunities than the virtual currency.