Due to the massive sale of stocks, many investors have fled the volatility of the stock market to take refuge in alternative assets such as gold and Bitcoin. But are these stock market alternatives a superior means to create wealth over the long term?
The price of gold has recently approached all-time highs. As a safe haven asset, its price is generally pushed upwards under uncertain conditions. However, gold has no return and the only return you will get is to sell it on the open market.
That said, for many investors, there is certainly room for gold in a well-diversified portfolio. The reason is that gold has always retained its value and acts as an effective hedge against inflation. In addition, in times of geopolitical uncertainty and volatile stock markets, it may be beneficial to have some exposure to gold.
However, investing in gold right now would mean buying at the top. Make no mistake, this is not a problem for long term investors, but I think there are better ways to build capital.
Could it be Bitcoin, I hear you ask? Well, I’m not so sure. As is the case with gold, virtual cryptocurrency has performed well since the market crash. That said, it should be noted that with share prices, the bitcoin price dropped about 46% in March. Since then, however, it has far surpassed gold and FTSE 100 index.
For me, the main drawback of Bitcoin is that its price is determined only by speculative supply and demand. Given the absence of underlying cash flows, it is impossible to determine the intrinsic value of virtual currency. Therefore, no one can say that Bitcoin is either overvalued or undervalued at some point.
In addition, the future of virtual currency is far from certain. After 11 years of circulation, Bitcoin is still not widely accepted. Ultimately, an overhaul of the global financial system will be necessary if Bitcoin is to play a role in daily transactions.
Good deals on the stock market
It may not seem like it right now, but investing in stock market crashes could be the best way to make a million. While volatility is expected to affect the stock market in the short term, the long term outlook for stocks remains favorable.
In the past, the market has always recovered from accidents and then reached new heights. In addition, if the FTSE 100 index continues to track historical returns of 8% per year, investors could have an orderly sum after a few decades.
For example, after 35 years of investing £ 500 a month, you would have an investment worth £ 1,078,202! In addition, outperforming the index with a diversified selection of individual stocks would mean reaching this amount in a shorter time.
As such, of the three assets discussed so far, I think that good deals on the FTSE 100 stock market could be the best way to build wealth in the long run.
Matthew Dumigan has no position in any of the actions mentioned. The Motley Fool UK does not hold any positions in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that taking into account a diverse range of information us better investors.