The performances of Bitcoin and the FTSE 100 have been markedly different since the start of 2020. While the virtual currency has gained around 25%, the FTSE 100 has experienced a high degree of uncertainty due to the coronavirus outbreak.
In the near term, the two assets may continue to experience differing return profiles. This may cause investors to consider buying Bitcoin, rather than FTSE 100 shares.
However, with the index currently appearing to offer good value for money, and it having a strong track record of recovering from its challenging periods, now could be the right time to invest £10k, or any other amount, in large-cap shares.
Recovery potential
In the short run, the FTSE 100 could fall due to the existence of a variety of risks. They include the aforementioned threats posed by coronavirus, which could disrupt global supply chains and cause consumer sentiment to decline. In addition, US political risks are at elevated levels in 2020, while the impact of Brexit on the index could be substantial due to a third of the FTSE 100’s income being generated in the UK.
However, the FTSE 100 has faced similar risks in the past. Certainly, they have contributed to disappointing periods for the index, in terms of falling share prices. But it has always recovered from those downturns to reach new record highs in the following months and years. Therefore, buying shares while they trade on lower valuations during such periods could prove to be a sound strategy.
Dividend opportunities
At the present time, a number of FTSE 100 stocks appear to offer good value for money. Investor sentiment has weakened in recent weeks, which has caused the index’s yield to increase to around 4.4%. Alongside relatively low price-to-earnings (P/E) ratios in a variety of sectors such as financial services, industrials and retail, this suggests that there are a wide range of undervalued income shares available to buy at the present time.
In many cases, those industries offer growth potential that may be more robust than investors are currently pricing-in. The world economy is expected to grow at a faster pace in 2020 than in 2019, while the long-term prospects for major economies such as the US, China and India continue to be robust.
Risk/reward
Bitcoin may have surged higher in the first part of 2020, but the virtual currency continues to face significant regulatory risks and may lack the required infrastructure to replace traditional currencies. Furthermore, its lack of fundamentals could mean that investors are unable to ascertain when attractive buying opportunities present themselves.
As such, buying undervalued FTSE 100 dividend shares could be a better investment strategy than buying the virtual currency at the present time. In the long run, the FTSE 100’s recovery potential could lead to high income and capital returns for investors in large-cap stocks.