Don’t waste your money on bitcoin, FTSE 100 growth shares could boost your retirement savings

A depiction of the cryptocurrency Bitcoin
A depiction of the cryptocurrency Bitcoin

Having risen by 78% in the last year, the performance of bitcoin has easily beaten that of the FTSE 100. The index is up just 1% over the same period, which may suggest that the cryptocurrency offers superior investment potential over the long run.

The reality, though, is that from a risk/reward perspective, the FTSE 100 could be a better place to invest than the virtual currency. The world economy is performing well, and this could turbocharge the index’s total returns over the coming years. In contrast, the appeal of bitcoin seems to be relatively limited, and potentially highly volatile.

Growth potential

As mentioned, the prospects for global GDP growth are exceptionally strong at the present time. The financial crisis which started a decade ago now feels like a piece of history, with the US and China delivering impressive growth figures. In the US, for example, GDP growth in the second quarter was 4.2%. Further growth is expected in the second half of the year, with President Trump’s focus on reducing taxes and increasing spending having a positive impact on consumer and business confidence.

Likewise, China’s economy has not slowed as quickly as many investors were anticipating. It seems to be effectively managing the transition towards a consumer-led economy. And while Brexit has held back the eurozone to some degree, it is expected to post improving GDP growth over the next couple of years.

All of this is positive news for the FTSE 100. Since its incumbents generate around 75% of their earnings from outside of the UK, a growing world economy could help them to produce higher earnings over the medium term. Despite the improving prospects for the world economy and large-cap shares, the FTSE 100 has a dividend yield of around 4% at the present time. This could indicate that it offers good value for money, with its risk/reward ratio seemingly favourable.

Uncertain outlook

In contrast, the prospects for bitcoin continue to be highly uncertain. Since the virtual currency has no fundamentals from which investors can determine its intrinsic value, its price continues to be highly volatile. Changes in demand and supply seem to be impossible to accurately predict on a consistent basis. This means that purchasing the cryptocurrency is akin to gambling, with price changes seemingly making little sense.

In the long run, the blockchain technology which bitcoin uses is set to become widespread in its application. The virtual currency, though, seems to lack real-world usability. Limits on its eventual size as well as a lack of infrastructure mean that it is very unlikely to replace traditional currencies. Likewise, regulatory risks mean that it is difficult to understand its purpose from an investment perspective.

Some investors may be drawn to its potential to generate stunning returns in a relatively short period of time. However, with the FTSE 100 offering a favourable risk/reward ratio at the moment, it seems to be a better means through which to build retirement savings over the long term.

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Peter Stephens 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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