The Bitcoin price has risen 115% in 2020. By contrast, many cheap UK shares have recorded major declines. As such, the virtual currency may seem more appealing than a basket of FTSE 100 and FTSE 250 shares.
However, the prospect of a long-term stock market recovery following the recent crash means that today’s undervalued shares could deliver impressive capital returns.
As such, investing money in a diverse range of high-quality British shares could be a more profitable long-term move than purchasing Bitcoin.
Buying cheap UK shares for the stock market recovery
Buying cheap UK shares could produce impressive returns in a long-term stock market recovery. After all, indexes such as the FTSE 100 and FTSE 250 have always successfully returned to record highs following their previous bear markets and crashes.
However, buying high-quality companies at low prices could be an even more profitable strategy. Businesses with competitive advantages may be better placed to benefit from increasing consumer confidence and an economic recovery. Similarly, companies with spare cash could use it to strengthen their market position through acquisitions or investment in new products.
Therefore, considering the quality of a business as well as aiming to buy cheap UK shares could be a means of generating stronger returns. It may also mean less risk, since stronger companies could be less likely to fold under a tough set of economic conditions.
Building a diverse portfolio of FTSE 100 and FTSE 250 shares
It’s possible to build a diverse portfolio of cheap UK shares. The dealing costs within ISAs are often relatively low. Services such as regular investing may also be available that further reduces commission costs.
Diversifying not only reduces risk through being less reliant on a small number of companies for returns. But it also provides access to a wider range of growth opportunities. This may be especially relevant at the present time. That’s because it’s currently difficult to know which sectors will recover quickest after the 2020 stock market crash. As such, a diverse portfolio of stocks may offer greater long-term growth prospects in an uncertain period for the world economy.
Bitcoin’s long-term prospects
Of course, Bitcoin doesn’t offer the diversification benefits of cheap UK shares. Furthermore, the virtual currency’s price is based solely on investor sentiment rather than fundamentals. This makes it more difficult to ascertain whether its price factors in risks such as regulatory threats and a limited infrastructure.
Therefore, investing money in a diverse range of high-quality FTSE 100 and FTSE 250 shares ahead of a likely economic recovery could be a better option from a risk/reward perspective. Doing so, could produce a surprisingly large nest egg in the long run. It could also minimise risk in what could prove to be an uncertain economic period over the coming months.
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.