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3 smarter ways of making a million than Bitcoin

It’s now been over 15 months since the Bitcoin bubble popped and an awful lot of people lost an awful lot of money. If you thought this painful episode would silence the bulls once and for all, you’d be wrong.

According to an article that caught my eye last week, one analyst believes that the cryptocurrency could “surge to $400,000.

While anything is possible when it comes to something that has no value beyond what someone is willing to pay for it, I’d take such predictions with a pinch (lorryload) load of salt. At the time of writing, a single coin is currently valued at less than $4,000, having fallen from just under $20,000 at its peak.

Personally, I think there are a number of ways that are far more likely to get you to the magic million.

1.  Re-invest those dividends

The strategy of holding a selection of high-quality, high-yielding shares and simply reinvesting the cash they distribute back into the market is undeniably boring. Thing is, ‘boring’ works in investing.

One of the most oft-cited bits of research is the Barclays Equity Gilt study. This showed that £100 invested in the UK stock market in 1899 would have been valued at £203 at the end of 2017. However, if all the dividends received over this period has been reinvested, that £100 would be worth a little under £35,000.

Investing for 118 years is unrealistic for all but the most optimistic of us. Nevertheless, the fact remains that doing nothing more than reinvesting dividends over 30-40 years could easily make you a millionaire.

2. Buy promising growth stocks

An alternative to dividend-paying shares is to research and buy those stocks you think will continue to grow profits at a rapid pace. This can require a lot of time and effort, not to mention appropriate risk management.

Nevertheless, consistently finding and buying the right companies at the right time can really pay off. Shares in figure-maker Games Workshop rocketed from 500p to 4,000p between 2016 and 2018, as did stock in tonic water specialist Fevertree Drinks.   

The only issue with this approach is that stocks that are tipped to grow at a furious rate going forward usually carry expensive price tags. 

That’s not necessarily a problem in good economic times but — as last October showed — investors have an (understandable) habit of dropping these companies whenever there’s a sign of trouble ahead.  

3. Go for the tiddlers

A third option for all budding millionaire investors involves (considerably) more risk but, potentially, even greater reward. 

One of the most consistent findings across investment research is that those investing in small-caps (companies worth anything less than a few hundred million pounds, at least in the UK) generate better returns compared to those buying stock in only the biggest companies.  

According to a 2015 report published by Standard Life Investments (now Standard Life Aberdeen), global large-cap equities delivered an 81.1% total return between 2000 and 2014. The return from global small companies was 332%.

If this sounds like your sort of strategy, then — again — it’s vital to spread your capital among a good number of businesses.

Alternatively, you could choose to invest in a managed firm or buy a (relatively cheap) exchange-traded fund that buys a whole load of small-cap companies from around the world, giving you a lot more diversification and infinitely less capital risk.

You won’t get that with Bitcoin.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.