The 2020 stock market crash was a bitter pill for investors to swallow. The appeal of UK shares rapidly declined and many turned their back on traditional equities in favour of alternative assets such as gold and Bitcoin.
What’s more, with further risks on the horizon, such as a second wave of coronavirus infections and deteriorating US-China relations, investor sentiment towards stocks could remain stubbornly low. However, over the long term, I’m confident that buying cheap UK shares is a safer and superior method of building serious wealth. Here’s why.
My concerns with investing in Bitcoin over the long term
In my view, one of the principal issues with Bitcoin is that, unlike shares and bonds, the cryptocurrency generates no cash flows that can explain its valuation. As such, virtual currencies derive their value from sheer investor speculation. This speculation results in wild and volatile price swings.
This significantly undermines the value of Bitcoin as a long-term investment, in my opinion. Considering that gaining exposure to Bitcoin would entail a reduction in an investor’s allocation to traditional stocks and bonds, investors should think long and hard about whether they believe the sacrifice is worthwhile.
That doesn’t mean to say there’s not a place for a small allocation to Bitcoin as part of a well-diversified portfolio. Rather, I’d caution investors against relying on Bitcoin as their main wealth-generating asset. After all, there’s a possibility that Bitcoin’s valuation could simply sink to zero.
Why I think UK shares are a superior way to build wealth
I think there are plenty of buying opportunities to pick up cheap shares in quality companies at the moment. With many stocks trading on vastly discounted valuations, now could be an ideal time to invest in UK shares and hold them for the long term.
History often proves that one of the best times to buy shares is during the aftermath of a major sell-off. That’s because investor sentiment usually remains low for some time before share prices recover. As such, I’d focus on companies that are trading well below their average historic valuations. As well as indicating potential value, investors can benefit from a wider margin of safety this way.
Successful investors such as Warren Buffett have realised huge gains in the long run by implementing this strategy. It’s often the case that buying companies with strong business fundamentals, that are poised to thrive over the coming months and years, achieves market-beating returns. This in turn can greatly increase your prospects of making a million through investing in the stock market.
To give you an example, let’s say you invest £500 a month into a range of UK shares over the next 35 years. Assuming an annual return of 8%, you’d end up with an investment pot worth £1,078,202. With that in mind, I’d focus on buying cheap UK shares over and above investing in Bitcoin. I’m confident they offer a far safer and superior way of building serious long-term wealth.
The post Thinking of investing in Bitcoin? Here’s why I’d buy cheap UK shares to make a million instead appeared first on The Motley Fool UK.
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Matthew Dumigan 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