Should you buy Bitcoin or invest in the stock market?

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It can be difficult to decide where to invest your money, especially when there are endless investment options.

Investing in the stock market is a proven 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, jumping almost 40% in the past 12 months. The price of Bitcoin (CRYPTO: BTC), however, has climbed almost 300% during this period.

Where you invest will have a huge impact on your long-term earning potential, so it’s important to make sure you’re investing in the right places. If you want to make as much money as possible by investing, should you buy Bitcoin or invest in the stock market? Here’s what you need to know.

Image source: Getty Images.

Weigh the risk and the reward

All investments come with some degree of risk, whether you buy stocks or cryptocurrency. However, cryptocurrency in general is much riskier than stocks.

Stocks have a long history of increasing in value over time. So if you buy a stock of a company with strong fundamentals, there’s a good chance the stock will experience long-term growth.

Cryptocurrency, however, is still uncharted territory. Bitcoin has only been around since 2009, and although more traders are starting to accept it as a method of payment, it is far from mainstream.

No one knows for sure if Bitcoin will ever become mainstream. It is possible that this will change the world, in which case investing now could make you very rich in the future. However, anyone can guess if this will actually happen, and there is also a chance that Bitcoin will be worthless in a few decades.

For this reason, investing in the stock market is safer than buying Bitcoin at this time. It is always important to do your research when investing in stocks because not all stocks are created equal. But if you invest in strong stocks with a solid track record, you are more likely to generate positive returns over time.

How to (safely) invest in cryptocurrency

That said, if you are keen on investing 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 isn’t successful, it won’t take the rest of your investments with it.

Also, if you choose to buy Bitcoin, only invest money that you can reasonably afford to lose. Don’t invest the money you might need in the near future and try to build a solid emergency fund with three to six months of savings before buying cryptocurrency.

Image source: Getty Images.

Another way to invest in Bitcoin is a more indirect approach through crypto stocks. A crypto stock is a business that is in some way related to cryptocurrency.

Square, for example, allows its sellers to accept cryptocurrency as a form of payment, and the company itself has invested heavily in Bitcoin. And tech company NVIDIA creates graphics cards that are often used in high-powered computers behind cryptocurrency mining. If Bitcoin ever becomes the mainstream, crypto stocks like Square and NVIDIA could benefit.

Investing your money is one of the best ways to build wealth, and buying stocks is a great place to start. Cryptocurrency is not for everyone, but if you choose to invest, be sure to take a strategic approach to keep your money as safe as possible.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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