Bitcoin isn’t a new concept, but it’s gaining a renewed interest from investors.
Over the past year, bitcoin’s price has skyrocketed as much as 350% and is currently trading around 275% higher. However, it’s also an extremely volatile commodity, and its price has experienced dramatic ups and downs over the past several weeks.
It’s tempting to try to capitalize on the hype surrounding bitcoin, but that can be a risky move. While some investors are optimistic about the future of the cryptocurrency, others say it’s experiencing a bubble, and it’s only a matter of time before the bubble bursts. If you buy and sell at just the right moment, you might earn some serious cash. But more than likely, you could get burned and potentially lose a substantial amount of money.
Instead of throwing your hard-earned cash into bitcoin, you might want to consider opting for one of these safer — yet still rewarding — investment options.
1. Index funds
Index funds are large collections of stock holdings that track a particular stock market index, such as the Dow Jones Industrial Average or the S&P 500. They may not be as exciting as high-flying investments like bitcoin, but they are one of the more stable and reliable investment options available.
Because index funds track the market, you’re almost guaranteed to see positive returns over time. Of course, nothing is ever truly guaranteed in the world of investing. But historically, the S&P 500 has experienced average returns of around 10% per year since its inception. And when the market itself is doing well, your index funds will be performing well, too.
The downside to index funds is that they’re simply average. They follow the market, meaning it’s impossible for them to outperform the market. For some investors, that’s a dealbreaker. However, while they may not experience extravagant short-term gains, they make up for it with their consistent long-term stability and growth.
Exchange-traded funds, or ETFs, are similar to index funds in that they are collections of stocks that are bundled together into a single investment. The biggest difference is that ETFs can be traded throughout the day like stocks.
ETFs also have more flexibility than index funds. Because index funds mirror the indexes they track, you can’t choose which stocks are included in the fund. Although you can’t necessarily choose the stocks included in an ETF either, there is a greater variety of ETFs that track different industries or segments of industries.
For example, you can invest in a broad-market index ETF, which is very similar to an index fund. Or you can invest in a more niche ETF that follows a certain industry, like the healthcare industry or the technology industry. If you invest in a tech ETF, for instance, all the stocks in the fund will be technology stocks. This allows you to limit your risk by diversifying your investments, while still focusing on a sector or segment that interests you.
3. Fractional shares
If you’d prefer to invest in individual stocks rather than funds, fractional shares allow you to invest in particular stocks without breaking the bank.
Fractional shares are small slices of a single share of stock. When you buy fractional shares, you can invest in companies that might have hefty per-share stock prices while only spending a few dollars. Of course, you won’t see as much in returns compared to if you’d bought full shares of stock (although your fractional share will change in value by the same percentages), but you’re also not risking as much money.
Not all companies allow fractional shares and not all trading platforms permit the trading of fractional shares, so keep that in mind as you’re deciding which investing strategy is right for you. But if you’re eager to invest in a particular stock without spending an arm and a leg, fractional shares can be a wise option.
Bitcoin may be in the headlines, but that doesn’t necessarily mean it’s a smart investment. Rather than throwing all your cash into a single risky investment, aim to diversify your portfolio and invest in stocks that are more likely to perform well over the long run. By focusing on the long term, you can avoid getting caught up in potentially risky investments.
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