For the second year in a row, Bitcoin, the world’s most popular cryptocurrency, has outperformed stocks, gold and other traditional investments in terms of gains. According to Finder.com‘s annual investment tracker, which tracks the performance of some of the UK’s most popular investments, Bitcoin was the best performing asset in 2021.
So, which other investments did well? And what are the key takeaways for investors? Let’s find out.
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Before we continue, please note that investing in Cryptocurrency is extremely high risk and complex. The Motley Fool has provided this article for the sole purpose of education and not to help you decide whether or not to invest in Cryptocurrency. Should you decide to invest in Cryptocurrency or in any other investment, you should always obtain appropriate financial advice and only invest what you can afford to lose.
Bitcoin reigns supreme
Every year, Finder.com fictionally invests £1,000 in some of the UK’s most popular investments to track their performance over the year. In 2021, the investments tracked included:
- The US dollar
- FTSE 100
- Tesla stock
- The Fundsmith equity fund
- A Union Bank savings account
The results for 2021 are in, and Bitcoin has been shown to be the best performing asset, outperforming the likes of stocks, gold, funds and savings accounts.
According to Finder, if you had invested £1,000 in Bitcoin at the start of January 2021, it would have been worth £1,622 at the end of the year. This is a significant gain, albeit a smaller one than in 2020, where a £1,000 investment finished the year at £3,919.
Indeed, had it not been for the digital asset’s spectacular fall in value over the last two months of the year, Bitcoin investors would have ended 2021 with much larger gains. Bitcoin’s price ended the year at around $47,000 (£35,000) after reaching an all-time high of nearly $69,000 (£51,000) in early November 2021.
How other investments performed
The second-best performing investment out of the seven tracked by Finder was Tesla stock. The stats show that a £1,000 investment in this stock was worth £1,364 at the end of 2021. That is a 36% rise.
In third place is the Fundsmith equity fund, which invests in a variety of global, well-established companies. According to Finder, the fund has been steadily rising since April. A £1,000 investment in the fund in January 2021 would have grown to £1,209 by the end of the year.
Here’s what a £1,000 investment in the other investments tracked by Finder would be worth at the end of 2021.
- FTSE 100 index fund – £1,125.25
- The US dollar – £1,033.16
- Union Bank savings account – £1,004.82
- Gold – £980.54
Gold is the only one of the tracked investments where investors would have actually lost money in 2021.
The key lessons for investors
Matt Mckenna, head of research and communications at Finder.com, says that it has clearly been a stellar period for riskier investments like Bitcoin and Tesla, despite a second year of Covid-19-related disruptions and mixed emotions.
According to McKenna, “This tracker highlights the potential returns that you can get if you’re prepared to risk your capital.” However, he cautions investors not to be swayed by the past performance of these assets as it is not a reliable indicator of future results.
This is especially true when it comes to crypto-assets such as Bitcoin. Despite its impressive growth over the last year, Bitcoin is still a relatively new asset operating in uncharted territory. It remains extremely volatile and speculative. That is why experts advise only investing what you can afford to lose.
According to Mckenna, “Higher potential reward comes with higher potential risk, and it is a real possibility that you could lose a lot, or all of your money.”
Of course, no investment, whether crypto or stocks, is risk-free. So how can you minimise your risk? The answer is simple: you need to consider diversification.
Diversification simply means having a wide range of different investments in your portfolio, like stocks and shares, crypto-assets, commodities, and so on. It’s highly unlikely that all assets will perform poorly at the same time. Any losses in one category will be offset by gains in the other. This reduces the overall risk that your portfolio will underperform or lose money.
Of course, diversification will not protect you if you make poor investment choices from the start. So, before you put your money into any investment, research it thoroughly to see if it has good long-term potential.