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Forget Bitcoin! I’d buy cheap FTSE 100 dividend shares to make a million

Peter Stephens
New virtual money concept, Gold Bitcoins

Global equity indexes, such as the FTSE 100, aren’t the only asset class to have experienced significant falls in recent weeks. The price of Bitcoin has dropped by over 10% since mid-February, with investors apparently becoming increasingly concerned about its future prospects.

While this may encourage some individuals to purchase Bitcoin, due to its lower price, buying FTSE 100 shares instead could be a better idea. They may offer better value for money, have more dependable recovery potential, and could improve your chances of making a million.

Valuation

The FTSE 100’s recent decline means the index now yields 5%. This is among its highest ever levels, and suggests it offers good value for money. In addition, many of its members currently trade on ratings that are substantially below their long-term averages.

This may make them attractive buying opportunities, since their valuations include wide margins of safety that factor in the potential for a worsening in the global economic outlook.

By contrast, assessing whether Bitcoin offers good value for money following its recent fall is much more challenging. The virtual currency doesn’t have any fundamentals, so potential buyers cannot use data to determine whether it is undervalued or overvalued.

Moreover, having a limited size and likely to experience competition from other virtual currencies in future, it may be unable to live up to current investor expectations. As such, its prospects could be somewhat challenging.

Recovery potential

The FTSE 100, however, has a long track record of delivering successful recoveries following its corrections and bear markets. It has been in existence for over 36 years and, in that time, has experienced challenges such as the 1987 crash, the tech bubble bursting, and the global financial crisis.

It has been able to recover from all of those crises, and many others, to post new record highs. Therefore, while it’s not known when a recovery will commence, it seems likely the FTSE 100 will ultimately deliver a turnaround after its recent decline.

Bitcoin, on the other hand, has a history of volatility. Certainly, it’s  risen by an exceptional amount over the past decade. But, its performance over recent years suggests it has lacked a clear direction, and has been subject to sudden changes in investor sentiment. Therefore, there can be no guarantee that it will recover to the $20,000 price level which it was close to achieving in 2017.

Buying opportunity

Although buying FTSE 100 shares right now may seem to be a highly risky move, in the long run they could deliver strong returns. Long-term investors who are able to overcome paper losses in the near term may be able to buy high-quality FTSE 100 shares while they trade on low valuations. This could increase their chances of making you a million in the coming years.

The post Forget Bitcoin! I’d buy cheap FTSE 100 dividend shares to make a million appeared first on The Motley Fool UK.

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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 2020