According to an investigation by The ascent, held in May 2021, more than 50 million Americans intended to buy cryptocurrencies over the course of the next year. Americans are attracted to cryptocurrencies for a number of reasons, including your belief in your long-term potential, as well as the possibility of a quick profit.
But I will not be one of those Americans. In fact, instead of buying cryptocurrencies, I will invest my money in one of Warren Buffett's Favorite Investments - and one that the Oracle of Omaha suggests is the right choice for most investors. It's about a S&P 500 index fund.
There are three big reasons why I prefer to invest in this Buffett pick any day of the week rather than any crypto.
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1. The S&P 500 has a long history
Predict the S&P 500 future performance is easy because there are decades of data to continue. In fact, since 1957, the financial index has produced an average annual return of 10% with reinvested dividends.
Although this does not mean that the S&P 500 produced these returns every year, a look at the full history of the index shows that if you were to invest in it at any time and leave your money alone for at least 20 years, you would have turned a profit no matter what. Too bad you scheduled your purchase. With such a long and successful track record, I can be fairly confident that I will be able to achieve similar returns on my own investment if I don't.
Cryptocurrency, on the other hand, has been around for a much shorter time. Most people consider Bitcoin to be the first virtual currency, and it was founded in 2009. So we are talking about a little over a decade of performance history. Since I am a long-term investor and prefer to follow Buffett's advice and avoid investing in something that I would not be happy to hold for at least a decade, an investment that has not been tested makes me nervous.
2. There is very limited risk when investing in the S&P 500
The S&P 500 fund aims to track the performance of 500 of the largest companies in the US Investing in it means putting a small amount of money into tons of businesses that are household names. As long as the American economy and all of its major companies do not suddenly suffer a dramatic collapse from which it is impossible to recover, it would be almost impossible to suffer large long-term losses with an S&P 500 investment.
Cryptocurrencies, on the other hand, pose a much higher risk. Many are of little use in the real world, as they generally cannot be used to pay for goods or services with most merchants. Prices are often divorced from the underlying value of coins, as people invest due to hype from social media or celebrity tweets. And it is quite possible that some coins will end up with their value plummeting to $ 0 if investors lose interest in them.
I'd rather not risk losing most or all of my investment in pursuit of potentially higher returns than cryptocurrencies can provide, especially since I can achieve my investment goals by getting the 10% average annual returns that the S&P 500 has consistently produced. for an hour. While I possibly be able to achieve my goals more quickly if cryptocurrencies paid off with higher returns, that's much less certain, and I'd rather be more confident that my investments will pay off.
3. The S&P 500 is not very volatile
The S&P 500 has definitely had some good years and some bad years. But because your money is spread over 500 very large companies, the price of an S&P index fund doesn't tend to swing too fast because the shares of so many companies would have to go up or down dramatically at the same time for that to happen. to happen. And when the index sees bigger ups and downs, there is almost always a very clear reason why.
In contrast, a quick look at the history of different cryptocurrencies shows that prices have generally been much more volatile. That means an investment at the right time could have led to much larger losses. I know the losses are not permanent until you sell, but I don't want my investment account balance to lose and gain large amounts with great regularity, often with little underlying justification.
For all these reasons, I prefer to invest in this Buffett favorite and stay away from investing in cryptocurrencies while saving money for my future.
