Bitcoin it is not a new concept, but it is gaining renewed interest from investors.
Last year, the price of bitcoin soared 350% and is currently trading around 275% higher. However, it is also an extremely volatile commodity and its price has undergone dramatic ups and downs in recent weeks.
It is tempting to try to capitalize on the hype around bitcoin, but this can be a risky move. While some investors are optimistic about the future of cryptocurrency, others say it is experiencing a bubble, and it is only a matter of time before it bursts. If you buy and sell at the right time, you could earn some serious money. But more than likely, you can get burned and lose a substantial amount of money.
Instead of throwing your hard-earned money into bitcoin, you may want to consider opting for one of these safer – but still rewarding, investment options.
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1. Index funds
Index funds are large collections of stocks that accompany a particular stock market index, such as the Dow Jones Industrial Average or the S&P 500. They may not be as exciting as ambitious investments like bitcoin, but they are one of the most stable and reliable investment options available.
As index funds track the market, you will almost certainly see positive returns over time. Of course, nothing is truly guaranteed in the investment world. 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, its index funds will also perform well.
The disadvantage 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 an obstacle. However, while they may not experience extravagant short-term gains, they make up for it with their consistent long-term stability and growth.
2. ETFs
Exchange-traded funds, or ETFs, are similar to index funds in that they are collections of shares grouped into a single investment. The biggest difference is that ETFs can be traded throughout the day as stocks.
ETFs also have more flexibility than index funds. Since index funds reflect the indexes they track, you cannot choose which stocks are included in the fund. Although you may not necessarily choose the stocks included in an ETF, there are a wide variety of ETFs that track different sectors or industries.
For example, you can invest in a broad ETF market index, which is very similar to an index fund. Or you can invest in a niche ETF that follows a particular industry, such as healthcare or technology. If you invest in a technology ETF, for example, all shares in the fund will be technology. This allows you to limit your risk by diversifying your investments, while still focusing on a sector or segment of interest.
3. Fractional actions
If you prefer to invest in individual stocks rather than funds, fractional stocks allow you to invest in specific stocks without breaking the bank.
Fractional shares are small slices of a single share. When you buy fractional shares, you can invest in companies that can have high prices per share, spending only a few dollars. Of course, you won’t see as many returns compared to buying whole shares (although your fractional share changes in value by the same percentages), but you’re not risking that much money either.
Not all companies allow fractional shares and not all trading platforms allow fractional shares to be traded, so keep this in mind when deciding which investment strategy is right for you. But if you are eager to invest in a particular stock without spending an arm and a leg, fractional shares can be a smart option.
Smart investment
Bitcoin may be in the headlines, but that doesn’t necessarily mean it is a smart investment. Instead of throwing all your money into a single risky investment, try to diversify your portfolio and invest in stocks that are more likely to perform well in the long run. By focusing on the long term, you can avoid getting caught up in potentially risky investments.