The broad-based S&P 500 (SNPINDEX: ^GSPC) has been on an absolute tear in recent years. Over the trailing five-year period, through March 10, 2018, the S&P 500 was up 79%. Mind you, the stock market historically averages a return of 7% per year, inclusive of dividend reinvestment and when adjusted for inflation. Over the past five years, it’s practically doubled its historic average return.
Can any other asset classes top the stock market’s returns over the next decade?
Yet investors are often left to wonder if they’re truly taking the smartest investment path forward. In other words, is investing in a broad basket of stocks via the S&P 500 the best way to put your money to work over say the next 10 years, or are other assets, such as Bitcoin, marijuana stocks, or gold, a considerably smarter play over the next decade?
Truth be told, all four investment classes — Bitcoin, marijuana stocks, gold, and the S&P 500 — offer pros and cons. Let’s have a look at what each asset offers investors, and then decide once and for all whether they have a genuine shot to outperform the stock market over the next 10 years.
Cryptocurrency Bitcoin is the darling of the retail investor. This relatively new peer-to-peer payment method has exploded since the turn of the decade, and in just eight years we’ve seen the value of each Bitcoin token catapult from $0.003 to nearly $20,000 at one point. Such astronomical returns are extremely rare — but are they sustainable, and can Bitcoin rise even more in the future? Let’s take a closer look.
Working in Bitcoin‘s favor is that retail investors predominantly control the show. Since most Bitcoin trading occurs on decentralized cryptocurrency exchanges, and institutional investors usually want nothing to do with these decentralized exchanges, Bitcoin is driven by the emotions of retail investors, rather than by fundamental reason. Emotions can be a powerful tool in pushing virtual currency valuations higher.Also, there aren’t many ways for skeptics to bet against Bitcoin. Even though the CME Group and CBOE Global Markets have both been offering Bitcoin futures contracts since December, which allows investors to finally bet against Bitcoin, each contract equates to a one- or five-Bitcoin bet. In effect, the investor may have to put up around $10,000 to $50,000 to bet on a downside move in Bitcoin, which could price a lot of investors out of making this bet. There’s considerably more incentive to push cryptocurrency prices higher than lower for this reason.Bitcoin is also responsible for pushing blockchain technology into the spotlight. Blockchain is the digital, distributed, and decentralized ledger underlying most cryptocurrencies that’s responsible for logging all transactions without the need for a bank. Its evolution could wind up reducing transaction fees on blockchain networks and significantly speeding up transaction validation and settlement times.
There’s little in the way of fundamental backing behind Bitcoin, with sheer emotion powering this train. Bitcoin’s focus is on signing up as many merchants as possible to accept its token, which is a difficult metric to measure and quantify into an actual monetary value.Regulators are beginning to clamp down on Bitcoin, which has benefited from loose government regulations up to this point. Now, Bitcoin is banned in a half-dozen countries worldwide and is facing more rigorous regulation in South Korea, China, and the United States. Though regulation can help validate Bitcoin as a legitimate asset, it takes away perceived aspects, such as the anonymity that made it initially so attractive to investors.Lastly, blockchain has come a long way since Bitcoin made its debut in 2009, and the fact is that Bitcoin‘s network is rather slow compared with many of its peers. With an average transaction processing time that can eclipse an hour, Bitcoin may find that its days as a medium of exchange are numbered.
Within the stock market, no asset class has been hotter than pot stocks over the past couple of years. Many of the largest marijuana stocks by market cap have doubled or tripled in value over the past year, and are up by more than 1,000% over the trailing two-year period. The big question is: Can this industry keep budding?
The pros of marijuana stocks:
The primary lure of marijuana stocks is their impressive sales growth potential. Leading cannabis research firm ArcView, in partnership with BDS Analytics, suggests that North American legal weed sales could grow by 28% between 2018 and 2021, leading to almost $25 billion in annual legal cannabis sales. Mind you, this estimate jumped by $3 billion from the previous year, and still takes into account the harsh stance the U.S. bears toward pot.The public is very much in favor of seeing…