Making a million is unlikely to happen overnight. In most cases, it takes many years to build a portfolio that is valued at over £1m.
Therefore, while virtual currencies such as Bitcoin may have surged higher in the past year, focusing your capital on assets that offer modest returns that are compounded over the long run could be a better idea.
Similarly, with gold trading close to a record high, it may not offer good value for money compared to the stock market.
As such, buying undervalued shares and holding them for the long run could be a better idea than purchasing gold or Bitcoin. It could improve your chances of making a million.
Stock market appeal
The stock market may not have grabbed the headlines in the same way as gold or Bitcoin in recent months, but it continues to offer a bright long-term future. The FTSE 100 and FTSE 250, for example, seem to offer better value for money than gold at the present time.
While the precious metal has enjoyed strong growth owing to investor fears about the outlook for the world economy, this trend is unlikely to persist in the long run. Therefore, focusing your capital on the stock market while it is at a lower ebb in its cycle than gold could allow you to buy undervalued shares that go on to deliver high returns.
With Bitcoin lacking fundamentals, and its price instead being determined by investor sentiment, it is almost impossible to determine whether it offers good value for money. As such, investing in shares could offer a more favourable risk/reward opportunity at a time when the virtual currency faces regulatory risks and continued uncertainty about its limited size.
Adopting a long-term approach to investing in the stock market may not seem to be the most efficient means of generating a profit from your capital. After all, the stock market ebbs and flows, which creates opportunities to continually buy at low prices and sell at high prices a short while later.
This strategy, though, is incredibly difficult to execute on a consistent basis. It also means that the cost of investing is relatively high. As such, a better idea could be to simply buy shares and hold them over a period of years, or even decades. This may enable your holdings to deliver on their strategies, and for investors to fully factor in their growth prospects.
A buy-and-hold strategy also enables compounding to impact on your portfolio value. For example, the FTSE 100’s 9% annual return since inception may not sound especially high. But when compounded over a period of 30 years, for example, it can turn a £5,000 investment into £66,000. By allowing compounding to impact on your portfolio returns, you could increase your chances of making a million.
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.