The Bitcoin price has been on a wild ride this year. The cryptocurrency entered 2019 at a price of around $3,800 before surging above $12,000 in June. Unfortunately, after hitting this peak, the value of the asset has declined over the past few months. It currently sits below $8,000.
This kind of price volatility has come to define Bitcoin over the past few years. Investors who bought the asset at its peak in December 2017 have seen the value of their investments decline by around two-thirds, and it doesn’t look as if this volatility is going to go away any time soon.
Bitcoin has no underlying cash flows, unlike stocks and shares, which means its intrinsic value is difficult to determine. The crypto asset is only worth as much as other investors are willing to pay.
And with this being the case, I think if you want to get rich, it might be best to abandon Bitcoin and buy stocks and shares instead.
Many happy returns
Instead of Bitcoin, I’d buy investment trusts and passive tracker funds to make a million. The great thing about these investment vehicles is that they own a range of different shares, spreading risk and reducing the chances that you’ll suffer a significant loss.
For example, a FTSE 100 index tracker fund owns all 100 stocks in the index, so you don’t have to worry about picking individual equities, or the fortunes of any one single company. As long as the global economy continues to grow, the earnings of FTSE 100 constituents should continue to expand as well, driving up the value of the index.
On top of this growth, the index also currently supports a dividend yield of 4.5%. Bitcoin doesn’t offer any income at all. You usually have to pay to keep it secure.
According to my calculations, it’s relatively straightforward to make a million using a simple FTSE 100 tracker fund. All you need is patience and a regular savings plan.
The road to a million
Over the past decade, the leading index has produced an average annual total return for investors in the region of 7%. That’s a combination of both income and capital growth.
At this rate of return, I calculate an ISA investment of £20,000 will grow to be worth £326,000 after 40 years. Add in additional monthly contributions of £250, and the balance will be £1m after 40 years of saving, assuming an average annual rate of return of 7%.
I think it’s highly likely the FTSE 100 will continue to produce this sort of annual return over the next four decades. Indeed, over the past 100 years, UK stocks have produced an average annual real return in the region of 5%. And it isn’t too much of a stretch to think that, going forward, stocks could earn 7% per annum.
If you’re willing to take on a bit more risk, over the past decade the FTSE 250 has produced an average annual return for investors in a region of 9%. At this rate of return, I calculate it would take an investor just 33 years to make a million, assuming a monthly deposit of £250 and starting pot of £20,000.
That’s why I’d rather buy a passive market tracker fund over Bitcoin to make a million any day.
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Rupert Hargreaves owns no share 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