Investing in Bitcoin and other cryptocurrencies is extremely attractive to many investors. For most, it’s the prospect of quick and explosive returns that compels them to take the plunge and invest money in risky assets. And while there could be a place in a diversified investment portfolio for virtual currencies such as Bitcoin, I’d much prefer to buy the best UK shares on the market when it comes to building wealth over the long term. Here are a few reasons why.
A safer method of building serious wealth
After 11 years in circulation, Bitcoin has yet to realise any real-world utility. While this may not suffice as a reason not to invest in the virtual currency, it demonstrates that at least for now, Bitcoin remains a purely speculative asset. In other words, the cryptocurrency derives its value from investor speculation, as opposed to fundamentals.
As a result, along with other cryptocurrencies, the price of Bitcoin is often highly volatile. In fact, it’s not astonishing to witness vast price fluctuations in a relatively short period of time. For example, at the beginning of the month, the price of Bitcoin plummeted 13% in just two days. With that in mind, I think it’s unwise to allocate a significant portion of your long-term portfolio towards cryptocurrencies such as Bitcoin.
Arguably, the same can’t be said when it comes to buying shares in high-quality UK companies. Due to the fact that businesses produce earnings, dividends and cash flows, it’s entirely possible to determine the value of company in relation to its share price.
Through a combination of evaluation metrics and an analysis of the underlying business, investors are able to assess the intrinsic value of a company and determine whether its shares are good value. Ultimately, through a combination of dividend payments and share price appreciation, investors can make a tidy return through buying the best UK shares and holding them for the long term.
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A superior method of building wealth
Not only do I think buying shares in high-quality British businesses is safer, but I also reckon it’s a superior way to build serious wealth. For example, although Bitcoin may continue to outperform UK shares in the short term, in the long run, the stock market has significant growth potential.
Over the last 30 years, the FTSE 100 and the FTSE 250 indices have netted an average annualised return of around 8% and 11% respectively. What’s more, investing in quality shares is a tried and tested method for building serious wealth. Look at investing genius Warren Buffett, who has made billions buying undervalued shares and holding them for the long term.
To top it off, many UK shares are currently trading well below their average historic valuations, suggesting a wide margin of safety for those investing today. Therefore, I’d focus on buying the best UK shares on the market today, rather than investing money in Bitcoin.
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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.
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