Gold and Bitcoin have performed well in 2020. As I write this â€“ shortly before Christmas â€“ gold is up almost 25% for the year. Bitcoin, meanwhile, is up a very impressive 220% year to date.
These are not assets Iâ€™d invest Â£10k in next year however. Below, Iâ€™ll explain why. Iâ€™ll also discuss where Iâ€™ll be investing my own money in 2021.
Gold is unpredictable
Gold performed well in 2020 for two main reasons. First, itâ€™s seen as a hedge against uncertainty. With the coronavirus causing unprecedented levels of economic uncertainty, demand for the commodity rose. Second, itâ€™s seen as a store of value. With central banks issuing enormous amounts of stimulus this year, investors turned to gold to protect their wealth.
Looking at the economic environment today, I think gold could keep rising in 2021. The thing is however, it could just as easily fall. If vaccines are rolled out successfully and optimism towards the global economy remains high, gold could struggle. This brings me to my main issue with gold â€“ its notoriously unpredictable. This lack of predictability makes it unappealing as a long-term investment to me.
Bitcoin is highly volatile
Turning to Bitcoin, itâ€™s even more unpredictable. This is an asset that can swing 10-20% in value in a single day for no real reason. This volatility makes it a highly speculative investment, to my mind.
While crypto bulls believe Bitcoin is the currency of the future, I personally donâ€™t think it will ever be accepted as a proper currency. The reason I say this is that itâ€™s just too volatile. Would you want to be paid your salary in a currency that swings 20% in value in a day? I know I wouldnâ€™t.
Itâ€™s worth pointing out that the last time Bitcoin traded near $20,000, in late 2017, it lost 80% of its value over the next year or so. Many investors lost a lot of money. Given its volatile track record, Iâ€™ll be steering clear of the cryptocurrency in 2021.
Where Iâ€™d invest Â£10k in 2021
So, where would I invest Â£10k in 2021? Stocks, of course. Compared to gold and Bitcoin, stocks are far more of a proven wealth generator. Just look at the long-term performance of the USâ€™s S&P 500 index. Since its inception in 1926, it has generated a return of about 10% per year.Â
Another thing I like about stocks is that, compared to assets such as gold and Bitcoin, theyâ€™re far more predictable. Sure, stocks are volatile in the short term. However, if you invest in high-quality, growing businesses, thereâ€™s a good chance youâ€™ll generate strong returns in the long term.
Thatâ€™s because as companies grow over time, their share prices tend to rise. â€œAll there is to investing is picking good stocks at good times and staying with them as long as they remain good companies,â€ says legendary investor Warren Buffett.
Investing in stocks worked well for me in 2020. Throughout the year I had nearly 10 stocks generate returns of 50%, or more. Some of my best performing stocks returned nearly 200%. Looking ahead to 2021, I see no reason to change my investment strategy.
Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.