With the FTSE 100 falling by roughly 19% in the year-to-date, it’s hardly surprising that people might be looking at alternative investments — like Bitcoin — to help them reach their goal of retiring early. While many FTSE 100 companies are trading at low prices, I believe now could be a great opportunity to load up on cheap shares.
The problem with Bitcoin
The FTSE 100 has fallen this year, but what’s happened to the value of Bitcoin? The price of the cryptocurrency has surged by 39%.
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Unlike FTSE 100 shares, Bitcoin has no intrinsic value. When you buy a share, you are buying a portion of a company. You have an interest in how every part of the operation is run, from the products and services it provides to the people managing the business and working there.
With Bitcoin, you have an electronic token. Its performance is dependent purely on supply and demand. To me, that’s speculation, not investing.
FTSE 100 dividend shares: investing for income
In this market, FTSE 100 investors may favour buying cheap shares for the growth potential and to benefit from the economy’s likely long-term recovery. Especially in light of multiple companies slashing, suspending or cancelling dividend payments this year.
However, there are also investors buying shares in companies that previously offered generous dividends while they are trading at a cheap valuation. When the pandemic ends, they hope these FTSE 100 businesses will reinstate dividends at previous levels.
By buying such dividend shares, it’s possible to build up a second passive income, potentially helping you reach retirement that bit earlier. Bitcoin doesn’t offer investors this prospect.
Cheap FTSE 100 shares
Of course, the drop in the FTSE 100 means there are plenty of cheap shares available to invest in. But where do you start?
During the coronavirus outbreak, we’ve seen whole industries on the brink of collapse. Although it’s a great time to pick up a bargain, there’s a real danger that we’ll still see some more companies fold.
One way to try to mitigate this risk is by diversifying your portfolio between companies and industries. Geographical diversity can also be built in, which should help lower the damage caused by the rise of geopolitical tensions that we’ve seen in recent years.
If you’re investing with smaller sums, buying into an index fund might be a good option. These types of funds aim to track a chosen index, like the FTSE 100. The fund should match the performance of the index over time. By buying into an index, you will be buying a portion of those cheap shares too.
These are unusual times, but the opportunity to buy cheap FTSE 100 shares doesn’t present itself often. Although the market has fallen, I think it will eventually recover. I don’t know about you, but I won’t be wasting this opportunity.