Cryptocurrency is one of the latest phenomenons in the investing world. Bitcoin has been setting records right and left, and many investors are starting to get on board.
Dogecoin (CRYPTO: DOGE) is a type of cryptocurrency that began as a joke in 2013. However, its price has soared by more than 6,000% this year alone, and it's gaining serious attention.
In general, cryptocurrency is a risky investment. Nobody knows whether digital currencies will become mainstream, and if they don't, these investments won't succeed over the long term. Dogecoin, though, is an especially risky investment.
Dogecoin's skyrocketing price has more to do with online hype than its strength as a cryptocurrency. Very few merchants accept Dogecoin as a form of payment, which will make it difficult to gain long-term traction. In addition, online investors have been promoting Dogecoin, artificially inflating its stock price.
This makes Dogecoin an incredibly risky investment because it's not built on solid fundamentals. If you want to get rich by investing, these three alternatives are a safer bet.
1. S&P 500 ETFs
S&P 500 ETFs track the S&P 500, which means they include hundreds of stocks from some of the largest publicly traded companies in the U.S. These ETFs are relatively safe investments, but they can still pack a punch.
The S&P 500 has earned an average rate of return of around 10% per year since its inception. Let's say you invest $5,000 right now and then don't touch that money. Assuming you're earning a 10% annual return, you'd have nearly $34,000 after 20 years — and that's without making any additional contributions.
The advantage of S&P 500 ETFs is that they're hands-off investments that grow with time. By leaving your money alone for as long as possible, you can potentially earn hundreds of thousands of dollars or more.
2. Dividend stocks
Some companies choose to pay a portion of their profits back to shareholders, which is called a dividend.
Dividend stocks are a smart option because they can help you build a source of passive income. Not only will you earn your normal investment returns, but you'll also collect a quarterly or annual dividend payment. Depending on how many shares of stock you own, you could earn a substantial amount each year in dividends.
Also, you often have the option to reinvest your dividend payments to buy more shares of a particular stock. This can be a wise strategy because it helps grow your portfolio without investing any additional money out of pocket. Then, the more shares you own, the more you'll receive in dividends. By reinvesting those dividends, you'll own more shares, and the cycle continues.
If you do decide to invest in dividend stocks, choose your investments wisely. Not all dividend stocks are created equal, and picking the right stocks is key.
3. Growth ETFs
Growth ETFs contain stocks that have the potential for rapid growth. These funds do carry more risk than some other types of investments because growing companies can be more volatile than well-established organizations. However, they also have the potential for higher-than-average returns. And by investing consistently, you could make a lot of money.
Take, for example, the Vanguard Growth ETF (NYSEMKT: VUG). Since its inception in 2004, it has earned an average rate of return of around 11% per year. Say you're investing $300 per month in this ETF, and you're earning an 11% annual return. Here's roughly how much you'd have over time:
Number of Years
With enough time and consistency, it's possible to become a multimillionaire with growth ETFs. Just be sure your funds are part of a well-diversified portfolio to limit your risk.
You don't need to invest in the trendiest types of investments to get rich in the stock market. Instead of betting on Dogecoin, opt for one of these safer choices. With the right investment, you can maximize your earnings while limiting your risk.
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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bitcoin and Vanguard Growth ETF. The Motley Fool has a disclosure policy.