Will your investments help you get rich quick and retire early? I hope so. But it’s not an easy challenge.
The first big decision is how you should invest your cash. In this article, I’m going to look at the opportunities offered by Bitcoin and gold.
I’ll then look at the stock market strategy used by Warren Buffett, and explain why I think this is still the best way to get rich and retire early.
I reckon investors in Bitcoin are actually pretty brave. Its price movements can be pretty wild. In 2018, it fell from about $15,000 to $3,700. So far in 2019, it’s bounced back to about $10,400.
One risk is that the Bitcoin price is controlled by supply and demand for the currency itself. The price isn’t linked to company earnings, the price of gold or any government-backed currency. If people stop wanting to trade Bitcoin, the price could collapse again.
Although Bitcoin is portable, it isn’t widely accepted. Banks, shops and businesses don’t generally allow you to pay with cryptocurrencies. You can convert your cryptocurrency to GBP, but if you’ve made a big profit trading it, then this could leave you facing a capital gains tax bill.
I’m not convinced it is a good way to get rich. But what about gold?
Everyone likes gold
Unlike Bitcoin, gold is recognised and can be converted to cash pretty much anywhere in the world. The price of gold has also been rising strongly. Over the last year, the price has risen by 25% to $1,505/oz.
The falling value of the pound against the US dollar means that the UK gold price has actually risen by about 33%. That’s a pretty good result for one year.
However, between September 2011 and December 2015, the price fell by more than 40%. Even today, the price is still 20% below its September 2011 high of almost $1,900/oz.
For me, the biggest problem with gold is that it doesn’t do anything. It doesn’t generate any income. It doesn’t expand. And unlike a house, you can’t live in it.
The only way to make money from gold is to wait for the price to rise and then sell it.
I don’t want to sell
Warren Buffett once said that if he finds a good investment, then “our favourite ideal holding period is forever”. That’s what I think too.
The reason why this makes sense for Mr Buffett (and me) is that we focus on investments that generate growth and surplus cash. For me, that means large, good-quality dividend stocks from the FTSE 100 and FTSE 250 indices.
Owning these over long periods gives me a regular income that (mostly) goes up each year. While I’m still working, I use this income to buy more shares. In turn, these new shares also generate income for me. And so I can buy even more shares.
This process is known as compounding and it’s one of the great secrets of Mr Buffett’s wealth.
Private investors in the UK also have one advantage that even Mr Buffett doesn’t enjoy. We can invest tax-free in the stock market using a Stocks and Shares ISA.
Investing like this is simple, cheap and can be very profitable. That’s how I hope to get rich and retire early.