While gold and Bitcoin may be viewed as attractive investments by some investors, there could be better opportunities available elsewhere for someone with £500 of spare capital.
Certainly, both assets have enjoyed strong performances in recent months. Gold gained over 15% in 2019, while the Bitcoin price surged over 90% higher in the same time period.
Both assets, however, could have relatively unfavourable risk/reward opportunities, which means that there may be a better investment strategy available to long-term investors.
Bitcoin and gold both have risks attached to investing in them. In Bitcoin’s case, its lack of fundamentals mean that it is impossible to accurately value the virtual currency. As such, you may end up buying £500 of the cryptocurrency at a price which proves to be highly unfavourable and leads to significant losses.
In addition, Bitcoin faces a variety of threats. They include regulatory change and competition from other virtual currencies that may become increasingly popular over the long run.
Gold, meanwhile, has proved popular partly as a result of the ongoing risks facing the world economy. They include the US/China trade war that has led to investors becoming increasingly cautious about their financial futures. This has caused them to buy defensive assets, such as gold.
However, with the track record of the economy showing that growth has always followed uncertainty and difficulty, the long-term prospects for gold could be relatively challenging – especially with it trading at a high price.
As such, there may be better opportunities to obtain a favourable risk/reward ratio through the stock market. One means of doing so with £500 to invest today is through a tracker fund. It aims to follow the performance of an index such as the FTSE 100. Although its performance may not be exactly the same as the index it aims to mimic due to tracking error, a tracker fund can provide long-term growth potential and diversification.
Since the FTSE 100 has recorded an annualised total return of around 9% since its inception in 1984, investing in a tracker fund can prove to be a sound move. They are low-cost and simple to administer, which makes them highly accessible to a wide range of investors.
Of course, there may be even better opportunities to beat the performances of gold and Bitcoin through buying individual shares. Many FTSE 350 stocks appear to offer wide margins of safety at the present time, which could enable you to generate index-beating performance.
Clearly, diversifying across a range of companies is highly important. A tracker fund makes this process far simpler and less costly. However, as your portfolio grows in size over time, it may be a good idea to start adding individual stocks to your portfolio of tracker funds to generate potentially higher returns in the long run.
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.