Bitcoin is nearing its all-time high of $20,000, but instead of buying the cryptocurrency today, I prefer to follow the lead of top investor Warren Buffett. He built his wealth through shares and, in a much more modest way, that’s what I plan to do as well.
I’m not against Bitcoin. I actually have a little crypto in my portfolio, so I’m cheering its upwards climb. I just don’t think this is the right way to get rich and retire early. It’s just too much of a gamble.
Warren Buffett didn’t become the world’s most successful investor by investing in things he didn’t get, like I don’t quite get Bitcoin. One of his most famous quotes addressing this issue? “Never invest in a business you cannot understand.”
I won’t go big on Bitcoin
As Warren Buffett’s quote suggests, you must always understand the fundamentals of anything you invest in. What it does, how it operates, and what’s the point of it. These are questions I struggle to answer when it comes to Bitcoin. I bought it for the reason many people do. FOMO (Fear Of Missing Out). Happily at a far lower value than today.
Of course, I still missed out, because I should have bought loads more. That’s another problem with Bitcoin. Whatever you do, you end up feeling like you’ve missed out. Buying at today’s price of $18,350 is incredibly risky. Given its volatile history, I think it’s much more likely to fall than rise from here.
Ask yourself why are you buying Bitcoin, and whether your reasoning makes sense. As Warren Buffett said: “Risk comes from not knowing what you are doing.” I’ve had no idea of what I was doing, at any stage of the Bitcoin trading process. It’s different with shares.
Buying shares is making an investment in the real-world productive economy, buying companies in key sectors such as energy, property, banking, pharmaceuticals and commodities. They generate value in the way that Bitcoin doesn’t.
Plan retirement the Warren Buffett way
I think now’s a great time to buy UK shares for my retirement, as the FTSE 100 has underperformed global rivals. If we get some kind of Brexit certainty, that could reverse in 2021. I could see the FTSE 100 powering beyond 7,000.
I think UK shares have much greater scope for growth than Bitcoin. Also, they pay dividends, and no crypto does that. I’d invest inside a Stocks and Shares ISA for tax-free returns.
If today’s stock market volatility makes you nervous, you could set up a regular monthly investment plan instead. If you invested £250 a month and the FTSE 100 delivered an average return of 7%, you’d have £303,219 after 30 years. After 40 years, you’d have £640,828. That’s the timescale you need to be thinking about when investing for retirement. As Warren Buffett said: “Our ideal holding period is forever.”
That’s why I’m buying cheap shares, not pricey Bitcoin.
Harvey Jones 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.