Why I’d buy Afterpay shares over gold or Bitcoin right now
All three have sparkled in 2020 and all three enjoy lots of love from their fans.
Afterpay shares, Bitcoin and gold have climbed strongly - a couple of them exponentially - which raises the question of which place is best to put your money.
First, let's look at their numbers.
The price of gold surged about 40 per cent between March and August as it thrived on coronavirus uncertainty.
Historically gold has done very well when the world does very badly. Promising vaccine developments in recent months have removed some of its shine, although it's still up about 25 per cent this year.
The precious metal's performance pales in comparison to cryptocurrency Bitcoin, which has almost trebled in value this year. Bitcoin is starting to be taken seriously by major investment managers and some see it as a modern-day safe haven alternative to gold.
But Bitcoin's growth doesn't match Afterpay's advance, which has quadrupled since the start of the year and surged from $10 to $120 since its March low point during the COVID sharemarket crash.
Afterpay jumped again last week after it was announced it would be added to the prestigious ASX 20 index - not bad for a stock that debuted in 2016 at $1 a share and is now well over $100 a share.
While I'm not a fan of Afterpay as a product - I reckon it's just as dangerous to consumers as credit cards - the company's sharemarket success has been breathtaking.
And if I had to choose one of either gold, Bitcoin or Afterpay as an investment right now, I'd go with Afterpay despite its expensive price tag.
That's because it's the only one of the three that's a company rather than a thing. Gold and Bitcoin will never pay an income and their investors rely totally on capital growth.
All of Afterpay's investment gains so far have come from capital growth too, as it hasn't booked any net profit and has never paid a dividend. But that doesn't mean it won't in the future, with the company's global expansion well under way.
Australia's best sharemarket performer of the last 20 years, Fortescue Metals Group, never used to pay dividends either. Today's it's swimming in profits and is one of the best dividend payers on the ASX.
Afterpay operates in the online world, which makes it easy and cheap to scale up its business model globally beyond the five countries where it already operates. Gold and Bitcoin rely purely on supply and demand so don't really control their own destiny.
While buying into any of them is more speculation than investing, it can be rewarding to add some spice to any investment portfolio.
However, it's unwise to put all your financial eggs in one basket. Investment specialists recommend spreading money across different types of assets, and say alternatives should only comprise a small part - less than 10 per cent - of your asset base.
For every Afterpay, there's a pile of stocks that don't make it, or burn brightly before fizzling out. Nobody knows what the future holds, which is why we diversify.
Originally published as Why I'd buy Afterpay shares over gold or Bitcoin right now