Bitcoin’s slump over the last few weeks highlights the risks involved in owning the virtual currency. Certainly, any asset can fall in price. However, Bitcoin’s 26% drop in the last month highlights that its performance can quickly change without clear reason. This may leave its holders wondering whether to sell, hold or buy more of the cryptocurrency.
As such, following a tried-and-tested means of investing your hard-earned cash could be a better idea than buying Bitcoin. Through regularly investing in a diverse range of mid and large-cap shares, it may be possible to significantly improve your long-term financial outlook.
While all investors would prefer to buy at the very bottom of the stock market’s trading range, and sell at the top, doing so may not always be possible. After all, it is incredibly challenging to accurately predict the near-term performance of the stock market.
As such, buying shares regularly could be a better idea. It will allow an investor to capitalise on the downturns which the stock market inevitably faces, and could mean that their capital is not generating low returns in the meantime in other assets such as cash. Regular investing also removes the decision on when to buy stocks, which can prove to be difficult. There are always risks facing the world economy and the stock market that may dissuade investors from buying, while buying too many stocks in one go during bull markets may limit the overall returns that are achievable.
Margin of safety
As mentioned, one of the drawbacks of Bitcoin is not knowing whether or not it offers good value for money. Its lack of fundamentals mean that investors may become increasingly cautious about buying it following a price fall, since its price is solely dependent on investor sentiment.
By contrast, the stock market offers a wealth of information that can provide an investor with an insight into whether a specific stock offers good value for money. This could enable an investor to improve their chances of generating high returns, while also helping them to avoid potential pitfalls in terms of weak stocks that are value traps.
Through focusing on value stocks, it may be possible to emulate successful investors such as Ben Graham and Warren Buffett. Their track records of success highlight that buying high-quality shares while they trade at low prices can be handsomely rewarded over the long run.
Perhaps the most appealing part of buying shares is the opportunity to benefit from compounding. This may take a while to have a noticeable impact on a portfolio’s valuation, but over time it can make a real difference to your chances of making a million.
Since the stock market generally follows an upward trajectory over the long run, adopting a buy-and-hold strategy that provides your holdings with the time they need to deliver on their potential could be a worthwhile move. History shows that simply holding stocks over the long run generally leads to high-single-digit returns which, when compounded, could eventually produce a seven-figure portfolio.