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This time last year, Bitcoin cryptocurrency was all the rage. The price of a single currency had risen from less than $ 1,000 in January to nearly $ 9,000 by the end of November. In December, the price had more than doubled, to just over $ 19,500.
Although impressive by any standard, these gains could never be sustained in the long run. Sooner or later the bubble will explode emany people would have received a very hard lesson about the dangers of following the crowd. In the end, we did not have to wait long.
Last week, one coin was yours for less than $ 4000 – 80% less than 11 months ago. The speed of the Bitcoin ascent was staggering, but its fall was just as rapid.
Enough because someone other than a gambler would be interested in buying the cryptocurrency now given this type of volatility is beyond me. In fact, here are three reasons why I think every rational investor should prefer to follow the highest level of the market.
Actions increase over time
While clearly not risk-free, the equity market is a much safer choice because equity returns have shown to outperform every other asset class Beyond the long term.
Yes, there will be oscillations from time to time. The last couple of months has certainly been anything but easy. Yes, not all societies will thrive, or even survive, over the next few years. And yes, watching the FTSE 100 is a lot less fun than tracking the value of a criocurrency.
But investing should not be based on what is exciting. Like Bitcoin, equities increase and decrease in value over time based on supply and demand. Unlike Bitcoin, the value of a stock is also related to the ability of a company to increase revenue and profits.
What does this mean? At this point next year, the cryptocurrency could be worth much more or maybe even more Anything based solely on speculation. A messy Brexit would be bad news for the FTSE 100, but its value is extremely unlikely to fall by 80% in less than a year.
Get paid while you wait
As well as increasing in value over the long term, investing in the FTSE 100 index through an economic tracker or a fund traded on the stock exchange earns you dividends. These payments are automatically reinvested (if you hold so-called "accumulation units") or paid in your account for you to do what you want.
If you intend to stay invested for years and wish to benefit from the beauty of the composition, you would be very wise to opt for the first one. If you are already retired, you may wish to use these payments as a method to supplement the state pension.
Bitcoin generates zero income for its holders.
Stay safe
Put all your hope in a single & # 39; asset & # 39; – especially one that has no underlying value – it is not a strategy that we approve of the Fool.
The beauty of keeping track of an index like FTSE 100 is that you're protected from disaster. The fact that your capital is dispersed among a group of companies – in this case, the largest companies listed on the London Stock Exchange – means that those who have difficulties must be balanced by those who do better. You are, in short, diversified.
It is only during difficult times that we learn how important this really is.
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Paul Summers has no position in any of the actions mentioned. Motley Fool UK has no position in any of the actions mentioned. The opinions expressed on the companies mentioned in this article are those of the writer and may therefore 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 taking into consideration a diverse range of insights make us better investors.
