The performance of Bitcoin in the past few years has highlighted the volatility that cryptocurrencies can experience. It surged to an all-time high of almost $20,000 in 2017 before declining by over 80% in a matter of months. Since then, it has delivered a short-lived recovery, which has been followed by another decline in the past six months.
Looking ahead, the Bitcoin price could continue to experience a difficult period. Regulatory risks, its limited size and competition from other virtual currencies could weigh on its performance.
As such, investing in FTSE 250 shares could be a better idea. They offer low valuations, a track record of growth and lower risk than the cryptocurrencies. They could increase your chances of making a million.
The past performance of the FTSE 250 is very impressive. In the past 20 years, for example, it has recorded annualised total returns of around 9%. While that may not turn your initial capital into a seven-figure portfolio overnight, in the long run it can deliver a surprisingly large nest egg.
For example, assuming an initial investment of £5,000, additional contributions of £200 per month and an annual return of 9%, you could generate a portfolio valued at almost £1m in a 40-year time frame. Clearly, investing larger amounts in FTSE 250 shares could lead to a greater chance of obtaining a seven-figure portfolio.
As mentioned, Bitcoin is a relatively risky asset to hold. But the FTSE 250 offers less risk than the cryptocurrency, with it being possible to reduce company-specific risk through diversification. This means the impact on your portfolio from one stock experiencing a disappointing level of return is minimised when you hold a variety of other companies.
Since it is relatively cost-effective to buy a wide range of companies through online share-dealing, building a diverse portfolio is an achievable goal for most investors. Diversifying may also provide you with access to a more varied collection of sectors and geographies which further improves your return prospects.
The risks posed by Brexit continue to cause investors to adopt a cautious stance towards the stock market, and especially when it comes to UK-focused companies. As such, now could be a good time to buy mid-cap shares, with many of them offering low valuations, growth potential and high yields.
They may not offer the potential to generate stunning returns in a short space of time, as Bitcoin might do. But from a risk/reward standpoint, they are likely to be more attractive to most investors. Therefore, they could be a better means of building a seven-figure portfolio. This process may take time, but the track record of the FTSE 250 shows that it is possible for modest sums of capital to produce a £1m+ portfolio in the long run.
The post Forget the Bitcoin price! I’d invest in FTSE 250 stocks to make a million appeared first on The Motley Fool UK.
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Motley Fool UK 2020