Having more than doubled since its March low, some investors may now be contemplating buying Bitcoin instead of UK shares. After all, the cryptocurrency has become popular among investors in a period where economic growth may be lacking, and many companies could face challenging operating conditions.
However, FTSE 100 and FTSE 250 shares have a long history of recovery that could mean they offer good value for money right now. Through buying a selection of them in a Stocks and Shares ISA, you could obtain a more attractive risk/reward opportunity than through purchasing Bitcoin.
The recovery potential of UK shares
A market rally for UK shares may seem unlikely at present. However, the track record of the FTSE 100 and FTSE 250 indexes suggests it’s very likely to occur in the long run. Both indexes have experienced similarly challenging periods to those present today, where economic growth is poor, unemployment is rising and investor sentiment is weak.
However, they’ve posted annualised returns in the high-single digits since their inception, and have always recovered from their challenging periods to post new record highs.
For example, a sustained bull market seemed very unlikely following the 1987 crash, as well as after the tech bubble and the global financial crisis. However, investors who purchased high-quality businesses that survived weak operating conditions in the short run are likely to have benefitted from the bull markets that followed those bear markets.
Although this strategy is unlikely to yield high returns from UK shares in the short run, it can lead to a surprisingly large ISA portfolio valuation in the long run.
Of course, diversifying across multiple UK shares is likely to be of great importance in the coming years. The global economy could change rapidly, as consumer trends and habits evolve at a relatively fast pace. As such, it’s currently unclear which sectors and regions will be the major winners over the long run.
Therefore, having exposure to a variety of businesses that operate in different sectors and geographies could be a shrewd move.
By its very nature, diversifying through Bitcoin is a much more difficult process than it is when purchasing FTSE 100 and FTSE 250 shares. Moreover, the virtual currency’s recent gains are based purely on investor sentiment, rather than improving fundamentals.
It doesn’t have the multi-decade track record of recovery of the stock market, and therefore may be less dependable than building an ISA portfolio of UK shares over the long run.
A long-term view
Bitcoin may continue to outperform UK shares in the short run. But the long-term risk/reward opportunity provided by the stock market appears to be more attractive than that offered by the virtual currency. As such, now could be the right time to buy bargain stocks that are likely to post strong recoveries in the coming years.
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.