Cryptocurrency has emerged as a popular investment despite the fact that many people still don't quite understand what it is and how to buy and sell it. These days, a growing number of vendors are accepting cryptocurrency as a form of payment, and more large companies are investing in it.
But despite the lure of cryptocurrency investing, it's hard to overlook the concerns. For one thing, most U.S. businesses do not accept cryptocurrency, and if it doesn't become increasingly mainstream, its value may wane.
Cryptocurrency is also extremely volatile. On April 23, Bitcoin (CRYPTO: BTC) and other digital currencies plunged in response to President Biden's recently proposed capital gains tax increase. All told, the entire cryptocurrency market lost $200,000 billion of value, according to CoinMarketCap.
It's for these reasons that you may not want to rely on cryptocurrency to make you rich. But that doesn't mean you should give up on growing wealth. Quite the contrary — here are two safer paths to achieving that goal.
1. S&P 500 index funds
Index funds are passively managed funds that aim to match the performance of the market indexes they're tied to. If you buy up S&P 500 index funds, you'll effectively scoop up a piece of the 500 largest publicly traded companies.
Now, let's talk about the S&P 500 index. The average annual return for the S&P 500 is nearly 10% over the long term, and over the past three decades, its delivered an average yearly return of over 12%. So say you decide to invest $500 a month over the next 35 years in S&P 500 index funds, and the S&P's return comes in at an average annual 9% during that time. That means you're looking at almost $1.3 million with this simple strategy.
Best of all, the S&P 500 is a relatively safe index to invest in because it's so broad. This doesn't mean you can't lose money by going this route, but it does mean you get the comfort of knowing you're buying a diverse mix of stocks and are banking on an index that's historically performed well.
2. Dividend stocks
The great thing about dividend stocks is that they offer you two opportunities to make money. First, you can buy dividend stocks and hope their value increases over time. Secondly, you can sit back and collect your dividends, and then reinvest them to further grow your wealth.
There are many companies that pay dividends, but you may want to focus on dividend aristocrats, which are those that have consistently raised their dividend for at least 25 years. As is the case with S&P 500 index funds, it's possible to lose money with dividend stocks. But if you choose companies with a strong history of not only paying dividends, but increasing them, that's less likely to happen if your intent is to hold those stocks for many years.
Cryptocurrency may be an enticing investment prospect, but there are definite drawbacks involved. This isn't to say that cryptocurrency shouldn't have a place in your portfolio. But if you're the type of investor who's at all risk-averse, a safer bet may be to stick to tried-and-true options that have historically performed well, and S&P 500 index funds and dividend stocks both happen to fit that bill.
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Maurie Backman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bitcoin. The Motley Fool has a disclosure policy.