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It can be tough trying to decide where to invest your money, especially when there are countless investment options out there.
Investing in the stock market is a tried-and-true way to build wealth over time, but cryptocurrency has been making waves for its explosive price increases. The S&P 500 has had a phenomenal year, surging by nearly 40% over the past 12 months. The price of Bitcoin (CRYPTO: BTC), however, has skyrocketed by nearly 300% in that timeframe.
Where you invest will make an enormous impact on your long-term earning potential, so it’s important to be sure you’re investing in the right places. If you want to earn as much money as possible by investing, should you buy Bitcoin or invest in the stock market? Here’s what you need to know.
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Weighing risk and reward
All investments carry some degree of risk, regardless of whether you buy stocks or cryptocurrency. However, cryptocurrency in general is far riskier than stocks.
Stocks have a long history of increasing in value over time. So if you buy a stock from a company with strong fundamentals, there’s a good chance that stock will experience long-term growth.
Cryptocurrency, however, is still uncharted territory. Bitcoin has only existed since 2009, and though more merchants are beginning to accept it as a form of payment, it’s far from being mainstream.
Nobody knows for sure whether Bitcoin will even become mainstream someday. There’s a chance it could change the world, in which case investing now might make you very wealthy in the future. However, it’s anyone’s guess whether that will actually happen, and there’s also a chance Bitcoin may be worthless a few decades down the road.
For that reason, investing in the stock market is safer than buying Bitcoin right now. It’s still important to do your research when investing in stocks, because not all stocks are created equal. But if you invest in solid stocks with a strong track record, you’re more likely to earn positive returns over time.
How to (safely) invest in cryptocurrency
That said, if you’re itching to invest in Bitcoin, there are ways to invest in cryptocurrency while limiting your risk.
One option is to invest a small portion of your portfolio in cryptocurrency while keeping the majority of your money in safer stocks. When the bulk of your portfolio is well-diversified with a variety of strong stocks from different industries, if Bitcoin doesn’t succeed, it won’t take the rest of your investments down with it.
Also, if you choose to buy Bitcoin, only invest money you can realistically afford to lose. Don’t invest any money you may need in the near future, and try to build a solid emergency fund with three to six months’ worth of savings before you buy cryptocurrency.
Image source: Getty Images.
Another way to invest in Bitcoin is a more indirect approach through crypto stocks. A crypto stock is a company that is somehow tied to cryptocurrency.
Square, for instance, allows its sellers to accept cryptocurrency as a form of payment, and the company itself has heavily invested in Bitcoin. And tech company NVIDIA creates graphics cards that are often used in the high-powered computers behind cryptocurrency mining. If Bitcoin does become mainstream someday, crypto stocks like Square and NVIDIA could benefit from it.
Investing your money is one of the best ways to build wealth, and buying stocks is a great place to start. Cryptocurrency isn’t right for everyone, but if you do choose to invest, be sure you’re taking a strategic approach to keep your money as safe as possible.
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Katie Brockman owns shares of Bitcoin. The Motley Fool owns shares of and recommends Bitcoin, NVIDIA, and Square. The Motley Fool has a disclosure policy.
