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Forget Bitcoin and gold. I’d aim for £1 million like this

The performances of gold and Bitcoin have diverged significantly over recent months. The gold price, for example, has risen by 16% since the start of the year. Investors have become increasingly cautious about the prospects for the world economy, with the precious metal’s defensive characteristics holding significant appeal.

By contrast, the price of Bitcoin has declined by as much as 20% over the last three months. This follows a period of growth, which highlights the significant volatility exhibited by the virtual currency.

Looking ahead, both assets could face challenging long-term outlooks. As such, now may be the right time to focus your hard-earned cash elsewhere in order to generate a seven-figure portfolio.

Challenging prospects

The gold price could experience further growth in the near term if investor sentiment weakens further in response to concerns surrounding the global economic growth outlook. However, its potential to deliver high returns over the long run could be limited. Investor sentiment is likely to improve over the coming years, which could switch their focus to riskier assets that also offer income opportunities.

Likewise, the long-term outlook for Bitcoin could be rather disappointing. Its lack of scalability may mean that it fails to replace traditional currencies, while rival cryptocurrencies could become increasingly popular. Furthermore, security concerns and the prospect of tighter regulations may mean that Bitcoin ultimately fails to become a mainstream asset.

Simple opportunities

As such, keeping your strategy simple could be a solid means of obtaining a £1m portfolio. In other words, relying on the tried-and-tested method of investing in a variety of stocks to benefit from their dividend returns and capital growth may lead to a more favourable risk/reward opportunity than those offered by gold and Bitcoin.

At the present time, there seem to be numerous opportunities to buy high-quality businesses while they trade on low valuations. The FTSE 100, for example, has many members that have price-to-earnings (P/E) ratios that are below their historic averages, while their international focus means they may be able to produce strong earnings and dividend growth that leads to improving investor sentiment.

Return potential

The FTSE 100’s track record suggests that it offers a relatively sound means of generating high returns over the long run. Since inception, for example, it has recorded an annualised total return of around 8%. For investors who have a long-term horizon, they may be able to invest relatively modest sums of capital in order to generate surprisingly large portfolios further down the line.

While this may not be able to keep up with the returns of gold and Bitcoin over specific short-term periods, in the long run the stock market appears to offer a more enticing risk/reward opportunity. Therefore, now could be the right time to adopt a simple strategy of buying undervalued companies in order to increase your chances of making a million.

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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.