With the prices of gold and Bitcoin near their all-time highs, they’ve both been quite a story in investing circles during 2020. But what now? Is it too late to pile into these vehicles and invest £20k?
Some would say it isn’t too late. There’s an argument out there that long-term investors should spread their investments between asset classes. But I’ve never really taken Bitcoin or any other cryptocurrencies seriously because of their lack of traditional fundamentals. And Warren Buffett put me off investing in gold with his negative comments over the years. Indeed, neither gold nor Bitcoin has the ability to build value for me in the way the businesses behind shares can.
Why I’d invest £20k in shares
However, I’m prepared to keep an open mind and change my views. And maybe I should. One theory suggests the world’s currencies have been devaluing against gold because of all the money printing we’ve been seeing. Hence the rise in the price of gold this year. But I’ve heard an interesting case for Bitcoin recently that I’ve not heard before from billionaire hedge fund manager and investor Paul Tudor Jones.
Jones reckons cryptocurrencies represent the future and at some point, we’ll be using them all over the world as money. But the interesting part of his theory is that Bitcoin could become a ‘precious’ crypto and behave a lot like gold does now. So, Bitcoin could become the standard that all other cryptocurrencies value themselves against.
He thinks the theory makes sense because Bitcoin was the first crypto and it has a finite supply. And that reasoning makes him believe Bitcoin could go much higher in the coming years and decades even though the price seems to already be very high now (at least to me it does).
Jones made me think about Bitcoin in a new light. But he hasn’t changed my strategy for investment and asset allocation. Indeed, the wealthiest general investor on the planet is Warren Buffett and he managed to make all his many billions without straying from stocks and businesses.
Businesses are active entities
And why would he? Every share is backed by a business. And the wonderful thing about businesses is they are active entities rather than passive ones as Bitcoin and gold are. In other words, businesses can expand their earnings, grow their assets and generate cash flows that can pay me a cash return in the form of shareholder dividends. Indeed, businesses are capable of growing the value of my investment, whereas Bitcoin and gold rely on speculation to move the price.
So, I’d invest £20k in carefully selected shares and share-backed investments in 2021 to achieve financial freedom. Even if that £20k only compounds at the market annualised average return of around 7%, I’d have an investment pot worth around £300,000 after 40 years. But I’d aim to beat that figure by investing regularly on top of that initial £20k and by working hard researching investment opportunities to achieve a higher annualised return than 7%.