Bitcoin has made a lot of millionaires over the last decade. Had you invested just $2,000 in the cryptocurrency around seven years ago when it was trading at around $10, that money would be worth a staggering $1,880,000 (£1,541,000) today, meaning you might just be retired right now.
Is an investment in Bitcoin the best way to make a million today though? I’m not convinced it is. In my view, if you’re looking to increase your wealth, stocks are a much safer bet. Here’s why.
The main concern I have with Bitcoin is that it doesn’t have a long-term track record. It has obviously been a brilliant investment over the last decade, yet going forward, no one knows how it will perform. It could rise to $100,000, or it could crash to $0, meaning investors lose everything.
Certainly, there are a number of issues that could have a negative impact on Bitcoin’s price. For starters, regulators around the world are cracking down on cryptocurrencies. Given the huge amount of criminal money that is laundered through cryptocurrencies such as Bitcoin every day, you can be sure that there will be new regulations introduced in the years ahead. This adds considerable uncertainty to the investment case.
Secondly, while Bitcoin is the most dominant cryptocurrency in the world today, you can’t assume this will always be the case. Already, Facebook has revealed plans to launch its own cryptocurrency, Libra, and it looks like many other big technology players such as Google and Amazon are looking to do the same. The arrival of these new cryptocurrencies could impact Bitcoin’s price.
To my mind, if your goal is to build a million-pound portfolio, stocks are a much safer bet. I say this because the stock market is a proven way of generating wealth over the long term due to the fact that stock markets tend to rise over time.
A portfolio of stocks is unlikely to generate the same kind of explosive growth that cryptocurrencies are capable of generating (i.e. Bitcoin rose 5,400% in 2013). However, since the FTSE 100 index’s inception in 1984, it has delivered a total return (capital gains and dividends) of around 9% per year and over the long term, this kind of return can increase your wealth significantly. For example, if you were to invest £10,000 per year into a portfolio of stocks and you generated a return of 9% each year on your money, your capital would grow to over a million in just 26 years.
And there are ways to generate much higher returns through stocks as well. The Fundsmith Equity fund, which invests in some of the world’s leading companies listed overseas, has delivered a return of approximately 170% in the last five years, which equates to an annualised growth rate of around 22% per year. While past performance is no guarantee of future performance, this kind of return on your money could boost your wealth significantly.
All things considered, if your goal is to become a millionaire and you’re deliberating between investing in Bitcoin or stocks, I’d go with stocks. The stock market has made many long-term investors wealthy in the past, and there’s no reason to believe that it won’t continue to do so in the future.
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Edward Sheldon owns shares in Google and has a position in the Fundsmith Equity Fund. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (C shares), Amazon, and Facebook. 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.