Following the recent stock market crash, some investors might have considered buying Bitcoin as an alternative to stocks. However, despite the cryptocurrency’s recent performance, over the long run, cheap FTSE 250 shares may be the better investment.
Buying cheap FTSE 250 shares
There are a couple of reasons why this could be the case. For a start, the price of Bitcoin is highly volatile. It’s determined by supply and demand, which means the price rises quickly when there are lots of buyers. But it can fall just as fast if sentiment changes.
On the other hand, cheap FTSE 250 shares are supported by underlying cash flows. This makes stocks easier to understand and value. It also allows these companies to provide investors with a dividend.
Bitcoin doesn’t offer a dividend. It generally costs money to store the crypto asset securely. This may impact total returns over the long run.
Compared to stocks, Bitcoin is also a relatively new asset. As such, we don’t know how it will perform over the long term. Stocks, meanwhile, have been around for hundreds of years. This track record provides plenty of evidence, which supports the conclusion that buying shares at low levels can generate high total returns over the long run.
Indeed, during the past three decades alone, the FTSE 250 has dropped more than 50% on two occasions. After each drop, the market has recovered steadily in the following years. Investors who were brave enough to buy cheap FTSE 250 shares at the bottom were well rewarded later.
A long-term investment
As such, history suggests that following the same approach today could generate attractive returns.
While it’s impossible to tell what the future holds for the stock market in the near term, over the long run, equities tend to track the performance of the global economy. This suggests the market will head higher over the next few decades, although it’s impossible to tell which direction the market will take in the next few months.
The same is true for Bitcoin. It’s impossible to tell if the price of the crypto asset will rise or fall in the next few months.
However, unlike cheap FTSE 250 shares, which may provide investors with a steady dividend income during times of uncertainty, Bitcoin doesn’t. Investors in the asset just have to hold on and hope for the best, while paying management fees at the same time.
Therefore, buying a diversified basket of cheap FTSE 250 shares today seems to make a lot more sense. Doing so may also help you make a million. Over the past three-and-a-half decades, the index has produced an average annual return of 12%. At this rate, a monthly investment of £250 could grow to be worth more than £1m in just 32 years.
The post Forget Bitcoin! I’d buy cheap FTSE 250 shares to make a million appeared first on The Motley Fool UK.
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