The Motley Fool

Forget Bitcoin! I’d rather make a million by buying FTSE 100 dividend shares

With the FTSE 100’s performance since the start of the year having been somewhat mixed, some investors may be considering the purchase of other assets in order to build a seven-figure portfolio.

While that’s somewhat understandable, the reality is that other assets such as Bitcoin may offer significantly higher risks. Furthermore, the track record of the FTSE 100 suggests it offers greater longevity than the virtual currency.

As such, now could be a good time to buy FTSE 100 dividend stocks, with their income returns providing the foundation for you to become a millionaire in the long run.

Track record

Although the Bitcoin price has surged higher in recent years, its track record shows it’s exceptionally volatile. In 2018, for example, it lost over 80% of its value. While the FTSE 100 has also experienced periods of severe distress, its volatility has arguably been less severe than that of the virtual currency.

Moreover, the FTSE 100 is made up of real businesses that have operations in a diverse range of economies. They provide a variety of goods and services that are likely to experience growing demand over the coming years in order to provide the index with capital returns.

By contrast, Bitcoin is a virtual currency which may ultimately be unable to replace traditional currencies. As such, it appears to be a far riskier proposition than investing in the largest listed companies in the UK.

Income potential

With the FTSE 100 having experienced a mixed period in 2019, it currently offers a dividend yield of around 4.2%. This provides investors in the index with the opportunity to boost their total returns so they aren’t wholly reliant on capital growth. Even though the index has risen from 1,000 points in 1984 to over 7,000 points today, compounded dividends amassed during that time are a significant contributor to total returns.

Bitcoin’s lack of income appeal means investors are relying on increasing demand in order to generate capital growth. While this has been present in 2019, the potential for regulatory risks and other virtual currencies to become increasingly prominent could mean the capital growth opportunities for Bitcoin are more limited than its recent price performance suggests.

Longevity

The world economy’s history includes a variety of assets that have come and gone, with investors becoming extremely excited about their prospects prior to their demise. The tech bubble is a recent example of this, with the internet ultimately being an evolution, as opposed to a revolution, in how it affects a variety of sectors.

Bitcoin could, therefore, fail to live up to current expectations in the long run. By contrast, the biggest global businesses are likely to still be around in the long run, forecast to generate growing profitability and rising stock prices in the meantime.

As such, they appear to be a far more dependable means of generating a million than the virtual currency, with the FTSE 100’s recent pullback providing greater opportunities to buy higher-yielding shares at a discount to their intrinsic value.

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Peter Stephens 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.