Is Bitcoin a good investment? Many people seem to think so. The Bitcoin price is currently trading around $18,322, and its market capitalisation is at an all-time high of $336bn. There’s definitely plenty of hype surrounding the cryptocurrency with many people confident that, as it finds mainstream acceptance, it’s value can only go up. However, as a way to invest £10k, gambling on the Bitcoin price is highly risky.
What if the price is at the top of another peak? What if people don’t accept Bitcoin as mainstream currency? What if… ? What if…? So many questions. Although many of these may also apply to FTSE-listed companies, unlike firms, Bitcoin has no intrinsic value. So, its price is based purely on the quantity of it demanded, meaning my chance of making any money, let alone a million, is based on others believing it’s worth more than I do. And at current prices, surely there can’t be that many? But, I’m guessing.
Consequently, if I could choose how to invest £10k, I’d forget the Bitcoin price and look elsewhere for something less risky.
Forget premium bonds too
If some of my friends had £10k to invest to try and make a million, they tell me they’d stick it into NS&I Premium Bonds. Premium Bonds are the UK’s biggest savings scheme where the monthly interest due to you, the saver, is determined by a monthly prize draw. Moreover, you won’t lose your money, rising inflation notwithstanding.
The top prize is £1m. Not bad interest if you can get it. And therein, lies the problem. The chance of winning this amount of interest on one £1 premium bond is 1 in 48,733,655,950. By comparison, the probability of winning the lottery is a much better 1 in 45m.
So, Premium Bonds are definitely less risky than Bitcoin but they’re also unlikely to make me that million. There must be a better way.
How to invest £10k? The FTSE 250
Alternatively, I could invest in FTSE 250 firms. Over the last five years, the index has produced a return of around 14%. If it carries on like this, I could put £10k in a tracker fund, wait about 35 years and voila! My million. Or, I could add a little each month to the initial £10k, hopefully resulting in making a million sooner.
Investing in a company is not like buying Bitcoin. You’re putting money into a real entity that produces something useful, like food, clothing, or vaccines. You can also assess each firm on how it’s doing relative to its peers and give it a monetary value. You can access information to help you make these judgements, lowering your risk of losing money.
After emerging from a stock market crash, and with the promise of a Covid-19 vaccine, FTSE-listed firms should be anticipating generating real revenues once again. Increased revenues often mean larger profits and the prospect of good returns, whether from income or capital gains. It’s a great time to invest. So, forget Bitcoin. I’m putting my £10k into firms on the FTSE 250 to make a million.
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Rachael FitzGerald-Finch 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.