Cryptocurrency has been on a wild ride in recent weeks. The Bitcoin price doubled over the course of a month, but then fell over 15% yesterday. Depending on who I talk to, some are forecasting for it to drop down to $10,000 by the end of the month. Others are saying it’ll bounce and go to $50,000! It’s almost impossible to forecast something like Bitcoin, and that’s the reason I’ve not been an active investor in it. Instead, I’ve been profitable from buying FTSE 100 stocks over the same period.
Lower volatility, smoother performance
I get the idea (especially from new investors) that people want to make large profits in a short period of time. Bitcoin has the potential to do that, due to the large volatility. But the likelihood of becoming rich overnight from any type of investing is very low.
Once I realised this, it was much easier to accept that the lower volatility of FTSE 100 stocks could provide me with smoother performance over time. True, my profits were going to be smaller in the short term. But the probability of coming out in the green at the end was also higher. I also accepted that I wasn’t going to be a trader, but rather an investor. This allowed me to be more objective about things. It meant that my emotions were calmer when making decisions on buying and selling.
However, just because I’d say investing in FTSE 100 stocks is more sensible than Bitcoin, it doesn’t make it boring! Take a look at some of these examples.
Long-term profits from FTSE 100 stocks
I recently wrote a piece about Anglo-American, the best-performing FTSE 100 stock over the past five years. If you take a look at the share price movements over this time, you’ll notice something. Apart from the FTSE 100 stock market sell-off in March last year, the trend line has been in a steady, linear move higher. Over the course of this period, it rose over 800%. During this rally, investors could justify the price movements, due to higher net profits, smart restructuring, and moves in commodity prices.
Another example is the London Stock Exchange Group. In a similar way to Anglo-American, the share price has risen almost 300% over the past five years, in a remarkably linear way. The rising market valuation was sustainable, with income going from £1.65bn in 2016 to £2.31bn in 2019. Operating profit also rose from £427m to £738m over the same period. Unlike Bitcoin, the share price isn’t rocketing up 10% a day. At the same time, it also isn’t freefalling with investors asking if it’s in a bubble.
The two examples hopefully show the point I’m trying to make. There’s good potential to make large profits from FTSE 100 stocks, but in a sustainable way. It’ll likely take a longer time period to achieve financial goals, but in my opinion you’re more likely to reach them.