The recent stock market crash may have caused some investors to seek out safer assets, such as Bitcoin.
Indeed, the Bitcoin price has achieved a much better performance than the FTSE 100 in 2020.
The price of the cryptocurrency has gained 37% since the beginning of the year. The FTSE 100 is down 17% over the same period.
However, the FTSE 100 has a much better track record of delivering high returns on a consistent basis. What’s more, many of the index’s constituents also offer a wide margin of safety at current levels.
As such, buying the index today could offer a more attractive means of improving your retirement prospects than Bitcoin.
The primary drawback of Bitcoin is the fact that it is only worth as much as buyers and sellers are willing to pay for it. As the cryptocurrency has no underlying cash flows, it is impossible to tell if it is overvalued or undervalued at any particular level.
The lack of profits or cash flows also means that Bitcoin does not produce any income. Many FTSE 100 stocks, on the other hand, offer their investors regular dividend payouts. This can help provide an additional passive income stream for investors. You may even have to pay to store Bitcoin in a secure facility.
While the FTSE 100 has had its fair share of ups and downs over the past few decades, it has been able to produce an annualised total return of over 8% since it was created in January 1984.
Investors who have been able to hold on to the index for this period have seen a significant return on investment.
That said, over the past few years, Bitcoin has outperformed the UK’s leading blue-chip index. But, it’s impossible to tell if this performance will continue. As noted above, the performance of the cryptocurrency is characterised by supply and demand rather than increasing profits. That may mean its performance over a multi-decade time period is highly uncertain.
The FTSE 100 for the long term
Therefore, buying the FTSE 100 rather than Bitcoin seems to be the most sensible way to invest for the long term. The easiest way to replicate the index’s performance is to buy a low-cost tracker fund. This will allow you to track the performance of the market at a low cost and without having to spend a lot of time and effort researching stocks.
Based on the index’s historical 8% per annum performance target, it would take 36 years of saving £400 a month to make a million. This would be enough to generate an attractive passive income or drawdown income of £40k per annum.
As such, it could be worth buying the FTSE 100 while the index’s shares look cheap. Over the long run, their return prospects could substantially outperform Bitcoin, which faces an uncertain and volatile future as well as high costs and trading restrictions.
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Rupert Hargreaves 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.