Bitcoin it is not a new concept, but it is attracting renewed interest from investors.
Over the past year, the price of bitcoin has skyrocketed as much as 350% and is currently trading around 275% higher. However, it is also a highly volatile commodity, and its price has experienced dramatic increases and declines over recent weeks.
It’s tempting to try to capitalize on the hype surrounding bitcoin, but that can be a dangerous move. While some investors are optimistic about the future of the cryptocurrency, others say it is experiencing a bubble, and it’s only a matter of time before the bubble bursts. If you buy and sell at the right moment, you it could earn some serious cash. But most likely, you could get burned and potentially lose a significant amount of money.
Instead of throwing your hard-earned cash into bitcoin, you might want to consider choosing one of the safer – but still worthwhile – investment options.
1. Index of 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-end investments like bitcoin, but they are one of the more stable and reliable investment options available.
Because index funds track the market, you are almost certain to see positive returns over time. Of course, nothing is really guaranteed in the world of investing. But historically, the S&P 500 has experienced average earnings of around 10% a year since its inception. And when the market itself is doing well, your index funds will perform well too.
The downside to index funds is that they are simple on average. They follow the market, which makes it impossible for them to outperform the market. For some investors, that is a deal. However, while they may not experience extravagant short-term gains, they make up for it with their stability and consistent long-term growth.
Exchange-traded funds, or ETFs, are similar to index funds in that they are collections of stocks bundled together into one investment. The biggest difference is that ETFs can be traded throughout the day as stocks.
ETFs also have more flexibility than index funds. Because index funds reflect the indices they track, you cannot choose which stocks are included in the fund. While you can’t necessarily choose the stocks that are contained in ETFs, 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, much like an index fund. Or you can invest in more specialized ETFs that follow a specific industry, such as the healthcare industry or the technology industry. If you invest in a technology ETF, for example, 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 would rather invest in individual stocks rather than funds, fractional shares allow you to invest in certain stocks without breaking the bank.
Fractional shares are small slices of a single share of the stock. When you buy fractional shares, you can invest in companies that may have high stock prices per share while spending just a few dollars. Of course, you won’t see as much in earnings as if you bought full shares of stock (although your fractional share will change in value by the same percentages), but you also don’t risk as much money .
Not all companies allow fractional shares and not all trading platforms allow fractional share trading, so bear this in mind when deciding which investment strategy is right for you. But if you’re looking to invest in a certain 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. Instead of throwing all your cash into one risky investment, try diversifying your portfolio and investing in stocks that are more likely to perform well over the long term. By focusing on the long term, you can avoid getting caught up in potentially risky investments.