The recent performances of Bitcoin and the FTSE 100 have been vastly different. While investor sentiment towards the latter has been relatively weak, the virtual currency has soared due to improving investor confidence.
While this trend may continue in the short run, the long-term prospects for the FTSE 100 could be superior than those of Bitcoin. As such, now could be the right time to pivot from the cryptocurrency to a range of large-cap income shares.
FTSE 100 growth potential
The FTSE 100’s performance over the past few years has been somewhat disappointing. Economic risks such as a global trade war have held back its performance, while political risks may yet combine to negatively impact on its future prospects.
However, the index has a solid track record of growth. It has overcome a variety of challenges, bear markets and recessions since its inception in 1984. During that time, it has delivered a high-single digit annualised total return that has provided the growth required for many investors to build a sizeable nest egg.
Looking ahead, the FTSE 100’s current price-to-earnings (P/E) ratio of around 14.8 suggests that it offers good value for money at the present time. In addition, its dividend yield of around 4.4% is relatively high and could mean that it is able to produce impressive return prospects.
Bitcoin’s uncertain future
Although Bitcoin may have surged higher in recent years, its prospects are highly uncertain. There are still doubts as to whether it can ever replace traditional currencies – especially with there being a range of other virtual currencies that could become increasingly prominent among consumers.
Additionally, Bitcoin’s lack of infrastructure could pose a threat to its future performance. And with regulatory risks being high, its potential to outperform the FTSE 100 could be limited if investor sentiment becomes less positive.
Certainly, Bitcoin is tempting after its 100%+ rise over the course of 2019. However, it appears to be more akin to a gamble, rather than an investment, for people who are seeking to build their wealth to bring retirement a step closer, for example.
With a large proportion of the FTSE 100’s historic returns having being generated by the reinvestment of dividends, now could be a good time to buy a range of income shares. There are currently around 25% of FTSE 100 companies that offer an income return in excess of 5%, while their dividend growth prospects could be high due to the outlook for the world economy being relatively positive.
Bitcoin may outperform the FTSE 100 at times in the coming years. But its uncertain future and the FTSE 100’s track record of growth mean that large-cap shares could be a much more appealing opportunity when purchased through a tax-efficient account such as a Stocks and Shares ISA.
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Peter Stephens 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.
Motley Fool UK 2019