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Should you invest £1,000 in bitcoin instead of relying on the State Pension?

Changes to the State Pension mean that demand for an alternative source of income in retirement is likely to increase. The new State Pension works out at little over £164 per week, which is simply insufficient for many people to even cover the basic cost of living. And with the pension age set to increase to 67 in the coming years, as well as the potential for further increases in subsequent years, the prospect of living off the state in retirement does not seem to be appealing.

Bitcoin

With the price of bitcoin having risen significantly in 2017, many investors suddenly became interested in the virtual currency. In fact, it began 2017 at $1,000 and rose to a high of just under $20,000 by December. Since then, though, the cryptocurrency has declined in price so that it now trades at around $7,500. As a result, many investors may be wondering if it is worth buying now, with the aim being that it will be significantly higher by the time they retire.

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Clearly, the potential for capital growth for bitcoin cannot be ruled out. It could become increasingly popular in future, and higher demand from investors may lead to a return to the heady days of 2017. However, the risks associated with the virtual currency seem to be exceptionally high. It is highly volatile, and investors could easily lose a large proportion of their investment in a short space of time.

Furthermore, its limited size means that it is unlikely to replace a traditional currency even over the long term. And with regulatory risk being high after various negative comments from policymakers across the globe, the potential for it to become truly mainstream seems limited.

Shares

As such, investing in it for retirement does not seem to be a sound idea. Certainly, it could have some appeal as a ‘bet’ or a ‘punt’, but when it comes to planning for retirement, the FTSE 100 could have a significantly better risk/reward ratio that could help you to overcome the deficiencies of the State Pension.

The FTSE 100 index continues to offer a number of stocks that could deliver high total returns in the long run. Among its largest companies are the likes of HSBC and BP, which both offer dividend yields in excess of 5%. And with both stocks having what appear to be solid growth prospects due to a pivot to Asia and the rising oil price respectively, they could provide strong total returns which could benefit your retirement saving prospects.

Of course, there are a number of other FTSE 100 shares which could do likewise. Rather than gamble on bitcoin with the financial freedom of your later years, buying a range of FTSE 100 shares that offer wide margins of safety could be the best way to overcome the inadequacies of the State Pension.

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Peter Stephens owns shares of BP and HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.