Bitcoin is not a new concept, but it is gaining renewed interest from investors.
In the past year, bitcoin’s price has skyrocketed to as much as 350% and is currently trading about 275% higher. However, it is also an extremely volatile commodity and the price has dropped dramatically up and down over the past few weeks.
It’s tempting to take advantage of the hype surrounding bitcoin, but it could be a risky move. While some investors are optimistic about the future of the cryptocurrency, others say it is experiencing a bubble, and it is only a matter of time before the bubble bursts. If you buy and sell at the right time, you will maybe earn serious cash. But most likely you could burn out and possibly lose a significant amount of money.
Instead of throwing your hard-earned cash into bitcoin, you may want to consider opting for one of these safer – yet rewarding – investment options.
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1. Index funds
Index funds are large collections of stocks that follow a particular stock market index, such as the Dow Jones Industrial Average or the S&P 500. It may not be as exciting as high investments like bitcoin, but it is one of the more stable and reliable investment options.
Because index funds keep an eye on the market, you can almost guarantee that you will return positive returns over time. Of course, there is never really a guarantee in the investment world. But historically, the S&P 500 has achieved an average return of around 10% per year since its inception. And if the market is doing well, your index funds will also perform well.
The downside of index funds is that they are simply average. They follow the market, which means that it is impossible for them to outperform the market. For some investors, this is a deal breaker. While they may not experience excessive short-term gains, they compensate for them with their steady long-term stability and growth.
2. ETFs
Exchange traded funds, or ETFs, are similar to index funds in that they are a collection of shares that are merged into a single investment. The biggest difference is that ETFs can be traded like stocks all day.
ETFs also have more flexibility than index funds. Because the index funds reflect the indices, you can not choose which shares are included in the fund. Although you may not necessarily be able to choose the stocks in an ETF, there is a wider range of ETFs that follow different trades or trading segments.
For example, you could invest in a broad-market index ETF, which is very similar to an index fund. Or you could invest in a more niche ETF that follows a certain industry, such as the healthcare industry or the technology industry. For example, if you invest in a technical ETF, all the shares in the fund are technological 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 prefer to invest in individual stocks rather than funds, you can invest in fractions in certain stocks without breaking the bank.
Fractional stocks are small slices of a single stock. If you buy partial shares, you can invest in companies with a solid share price per share, while spending only a few dollars. Of course, you do not see as much in returns compared to buying full shares (although your fraction will change by the same percentages), but you also do not risk that much money.
Not all companies allow partial shares, and not all trading platforms allow trading in fractions, so keep this in mind as you decide which investment strategy is best for you. But if you are eager to invest in a particular stock without spending an arm and a leg, fractional stocks can be a great option.
Smart investment
Bitcoin may be in the headlines, but that does not necessarily mean it is a smart investment. Instead of throwing all your cash into a single risky investment, you should diversify your portfolio and invest in stocks that are more likely to perform in the long run. By focusing on the long term, you can avoid getting caught up in potentially risky investments.