The performance of Bitcoin in the past few years has highlighted the volatility that cryptocurrencies can experience. It surged to an all-time high of almost $20,000 in 2017 before declining by over 80% in a matter of months. Since then, it has delivered a short-lived recovery, which has been followed by another decline in the past six months.
Looking ahead, the Bitcoin price could continue to experience a difficult period. Regulatory risks, its limited size and competition from other virtual currencies could weigh on its performance.
As such, investing in FTSE 250 shares could be a better idea. They offer low valuations, a track record of growth and lower risk than the cryptocurrencies. They could increase your chances of making a million.
The past performance of the FTSE 250 is very impressive. In the past 20 years, for example, it has recorded annualised total returns of around 9%. While that may not turn your initial capital into a seven-figure portfolio overnight, in the long run it can deliver a surprisingly large nest egg.
For example, assuming an initial investment of £5,000, additional contributions of £200 per month and an annual return of 9%, you could generate a portfolio valued at almost £1m in a 40-year time frame. Clearly, investing larger amounts in FTSE 250 shares could lead to a greater chance of obtaining a seven-figure portfolio.
As mentioned, Bitcoin is a relatively risky asset to hold. But the FTSE 250 offers less risk than the cryptocurrency, with it being possible to reduce company-specific risk through diversification. This means the impact on your portfolio from one stock experiencing a disappointing level of return is minimised when you hold a variety of other companies.
Since it is relatively cost-effective to buy a wide range of companies through online share-dealing, building a diverse portfolio is an achievable goal for most investors. Diversifying may also provide you with access to a more varied collection of sectors and geographies which further improves your return prospects.
The risks posed by Brexit continue to cause investors to adopt a cautious stance towards the stock market, and especially when it comes to UK-focused companies. As such, now could be a good time to buy mid-cap shares, with many of them offering low valuations, growth potential and high yields.
They may not offer the potential to generate stunning returns in a short space of time, as Bitcoin might do. But from a risk/reward standpoint, they are likely to be more attractive to most investors. Therefore, they could be a better means of building a seven-figure portfolio. This process may take time, but the track record of the FTSE 250 shows that it is possible for modest sums of capital to produce a £1m+ portfolio 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.