Bitcoin (BTC 0.01%) has been making waves after Tesla announced it was buying $1.5 billion worth of the cryptocurrency.
Although the price of Bitcoin has soared recently, reaching a record high of around $45,000 on Feb. 10, it's an incredibly risky investment. On more than one occasion, Bitcoin's price has plummeted, at one point losing nearly 80% of its value. In fact, between Jan. 1 and Jan. 26 of this year, Bitcoin dropped by more than 25% before bouncing back.
While it's possible to make a lot of money investing in this cryptocurrency, there are better options out there. These investments carry less risk, but there's still potential to earn higher-than-average returns.
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1. Growth ETFs
Exchange-traded funds (ETFs) are groups of securities bundled together into a single investment. Growth ETFs contain stocks that have the potential to experience rapid growth. They're designed to beat the market, making them a good choice if you're looking to earn above-average returns.
Because high-growth companies can be volatile, growth ETFs are somewhat riskier than some other types of investments. However, one of the key advantages of ETFs is that you're investing in many stocks at once. This limits your risk because your portfolio won't be drastically affected if a few stocks in the fund underperform.
2. Dividend stocks
Dividend stocks are investments that essentially pay you to own them. When a company has leftover profit at the end of the year, it sometimes will pay a portion of that money back to shareholders in the form of a dividend.
Just how much you can earn in dividend payments depends on the individual stock and how many shares you own. While a higher dividend payment is usually ideal, it's important to look at the big picture when choosing stocks. If a particular equity has a high dividend yield but the company is struggling, it's probably not a wise investment.
Many dividend-paying stocks are established companies with long, successful track records, making them less volatile than smaller or younger businesses. Although you may not see as much growth with these stocks, you can earn a decent amount of passive income from dividends.
3. Small-cap stocks
Small-cap stocks are companies with smaller market capitalization -- generally $300 million to $2 billion. These stocks are appealing to many investors because of their potential to grow into large-cap stocks.
All behemoth corporations had to start somewhere, and it's every investor's dream to invest in the next Amazon, Apple, or Tesla. By investing in small-cap stocks, you're buying companies that may someday be worth hundreds of billions of dollars.
Small-cap stocks do tend to be riskier than large-cap stocks, simply because smaller companies tend to be more volatile. But if you do your research, invest in solid companies, and hold onto your investments for the long term, you have a better chance of seeing significant returns.
No matter where you choose to invest, it's important to weigh risk versus reward. You can earn lots of money from trendy investments like Bitcoin, but they carry an enormous amount of risk. By focusing on less risky investments, you can keep your money safer while still maximizing your rewards.
