Investing in Crypto or Stocks: Which is safer for your Portfolio?

Considering whether to buy crypto or stocks? Investing in top stocks makes a lot more sense than buying crypto and we explain why in this article.

Are you interested in investing in crypto or stocks? I still can’t think of anything that would make me optimistic on bitcoin or any cryptocurrency, even after the deep slump the whole sector has gone through recently. The best thing I can say about bitcoin is that it will probably remain volatile, rather than vaporizing like the worst crypto performers.

Please don’t misunderstand. I respect and agree with the many investors who have high expectations for the future of blockchain. (That’s the digital technique that serves as a foundation for bitcoin and other crypto creations.) Some investor/digital gurus think blockchain will change the world. They may be right. However, bitcoin is simply the earliest and most widely known blockchain user.

Bitcoin’s stature as a blockchain poster child has earned it plenty of media and public recognition. But bitcoin’s link with blockchain has no bearing on the future of bitcoin (or any other cryptocurrency) as a substitute for money.

This may surprise respondents to a recent survey about their plans for retirement financing. One quarter of those surveyed, and 30% of millennials, said they were planning to rely on “cryptocurrencies” to finance some of their golden years.

Should I invest in crypto or stocks? Understanding false narratives and how it relates to Bitcoin investment risk

The term “false narrative” has been around at least since the 1830s, but came into common use around the time of the 2016 U.S. Presidential Election. Each of the two main political parties accused the other of concocting and spreading an incomplete and/or biased story that falsely showed their candidate in a bad light.

However, it’s easy to concoct your own false narrative and let it guide your financial decisions. Widespread false narratives happen rarely enough that they find a way into history. Personal false narratives happen much more often. But each one is a little different from the next, and most people would prefer not to talk about them.

Here is a look at a false narrative involving Bitcoin investment risk:

Bitcoin is going to replace the U.S. dollar. This will happen because of a voluntary switch from the U.S. dollar to Bitcoin, which is already underway. People will keep switching to Bitcoin because you can carry out transactions much faster and at lower cost in Bitcoin than in U.S. dollars. Bitcoin transactions are much more private than U.S. dollar transactions, and you can transfer Bitcoin around the world with no need to declare it to any border guards or government agents along the way.

The blockchain technology that Bitcoin rests on seems to have a lot of commercial applications, and is undoubtedly a revolutionary invention. But Bitcoin is just the first of many digital “cryptocurrencies” that blockchain technology can create. Why assume blockchain is the ultimate cryptocurrency? Why assume that all U.S. dollar users will go along with the narrative and shift to Bitcoin?

For that matter, the biggest U.S. dollar user of them all is the U.S. government. The second biggest spenders are state and local governments. Governments may use blockchain technology for their own purposes, of course. But they have no incentive to support Bitcoin, or any cryptocurrency that can thwart taxation and help people hide assets and transactions.

Entrepreneurs launched many blockchain-based Bitcoin alternatives, and Bitcoin enthusiasts lapped them up. That’s a classic sign of an investment mania. Manias begin as a mass attraction to a specific investment or area of investment. They go on to include a wide range of related investments that have an ever-fainter resemblance to the spark that got things rolling.

Of course, this false narrative could still have a lot of life left in it. I’m not saying it will end overnight. I am advising against investing in Bitcoin, since the odds in my view are heavily weighted against you.

Buying crypto or stocks: Don’t forget about blue chips

Many of the best “regular stocks” are blue chip stocks. Blue chip companies can give investors an additional measure of safety in volatile markets. And the best ones offer an attractive combination of moderate p/e’s (the ratio of a stock’s price per share to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price), and promising growth prospects.

Most successful stocks share these qualities in common:

  • The most successful stocks come from successful companies.
  • The most successful stocks maintain or increase their dividends.
  • The most successful stocks have strong balance sheets, hidden assets, and experienced management teams.

Interested in crypto or stocks? Use our three-part Successful Investor approach for all of your investments

  1. Hold mostly high-quality, dividend-paying stocks.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  3. Downplay or stay out of stocks in the broker/media limelight.

Do you have more confidence in crypto or stocks?

Are there any reasons why you would buy crypto instead of stocks?

Pat McKeough has been one of Canada’s most respected investment advisors for over three decades. He is the founder and senior editor of TSI Network and the founder of Successful Investor Wealth Management. He is also the author of several acclaimed investment books. This article was published on Aug. 5, 2022 and is republished on the Hub with permission.

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