If I wanted to increase my money tenfold, I’d buy UK stocks long before I touched cryptocurrencies.
I do see the appeal of cryptos like Bitcoin and Ethereum. Both coins have multiplied investments rapidly in the past. If I wanted to turn £10k of savings into a £100k nest egg then it makes sense that they might be the best investment choice I have.
But UK stocks have multiplied cash tenfold too. Some of them in only a few years as well. And I can target these monster returns without the same overarching problems that plague an investment in cryptocurrencies. Here’s how.
I first cottoned onto Bitcoin when it was $2,000 a coin. Since then, the price has risen as high as $70,000. That’s a 35 times return in only a few years, so I could be kicking myself for not throwing in all my savings at that point.
Ethereum was similar. I discovered it when when the price was $200 a coin before it jumped up to $3,400 for a 17 times return. Another big winner thrown away? No, that’s not the way I’m looking at it.
The coins are worth more because more people want to buy them. More demand means a higher price. But the demand here came from speculation, people buying the coins because they thought they might get rich.
10 times return
And that’s the point. Where is the future demand for these coins coming from? Is it likely that 10 times more people will buy Bitcoin to make the price go up 10 times higher? I don’t see it.
The demand will increase if and when cryptocurrencies have a practical, mainstream use. Is my local supermarket going to let me pay with Bitcoin any time soon? It doesn’t seem likely, so I don’t see a future where demand for Bitcoin rises massively.
Now, Ethereum is down 60% from that high and Bitcoin is down 70%. Even the worst stock market crashes aren’t that bad.
And the the thing with stocks is they actually do something. UK stocks make cash and lots of it. If I’m standing in my supermarket cursing that they don’t accept my crypto, I might at least admire the business model and products they sell. Well, I can go home right then and there and buy the shares, each one giving me a portion of the profits it makes selling groceries.
That money could be paid directly to me as a dividend or indirectly through a share buyback. The cash could be spent paying down debt, investing in growth or various other ways to increase the value of the company, and of course, make my shares worth even more. This kind of business growth is why FTSE 250 shares have gone up around 20 times in value over the last 30 years.
Effective wealth generation
I will say that UK stocks aren’t likely to have rapid returns and can drop in value too. My target is to turn £10k into £100k and that will take probably decades. I don’t mind though. Slow, boring-but-effective wealth generation. That sounds just dandy to me.
The post Forget Bitcoin and Ethereum, I’d buy UK stocks to turn £10k into a £100k nest egg appeared first on The Motley Fool UK.
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John Fieldsend 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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