Stocks or Crypto? Which Portfolio Will Generate the Most Returns?

Stocks or Crypto? Which one will give the best returns? This is a question I hear very often, and something I am curious to know as well.

Historically speaking, given crypto’s short lifespan of around 12 years, we cannot gauge a long term historical performance like stocks do.

Based on a 100-year span though, we know that equities (stocks) outperform every asset in existence. (before Crypto)

So today, I will be coming up with 3 different portfolios, each with their own unique investment thesis and viewpoints that I will explain further below.

Portfolio Criteria

The criteria is simple. All three portfolios will have a total of 5 positions, with allocations spread evenly (20% weighting each) at a starting capital of $100,000 USD.

All 3 portfolios were started at the same time, and the stock prices were taken as the closing price on 18th June 2021. As for crypto, their prices were taken as of the time of writing on 20th June 2021.

The portfolio inception date is 20th June 2021, no rebalancing will be done, no additional buy-ins, no sell-offs, all 3 portfolios will just naturally grow into their new allocations.

Returns will be purely based upon future returns.

This will give equal opportunity for each portfolio to demonstrate their growth potential, and used as arguments as to whether stocks, stocks ETF, crypto or combination of both will provide better overall returns.

Results will be tracked and published on a semi-annual basis for more meaningful analysis and performance.

Here are the portfolios:

Portfolio 1: 100% Equities-Growth ETF Picks

As of 20 June 2021

1. QQQ (Invesco QQQ ETF) – 20%

2. ARKK (ARK Innovation ETF) – 20%

3. ARKG (ARK Genomic Revolution ETF) – 20%

4. ARKF (ARK Fintech Innovation ETF) – 20%

5. WCLD (WisdomTree Cloud Computing ETF) – 20%

Total: $100,000 USD

Portfolio’s Reasoning

The reasoning for this portfolio is simple. It is for individuals investors who prefers passive investing, but have a more aggressive risk appetite with a strong preference for high-growth ETFs.

The 5 ETFs in play are overweight on Technology, with a diversification across NASDAQ-100, Fintech, Genomic Revolution, Cloud Computing and Disruptive Innovation.

Some may call it a speculative bet on the future, but historically speaking, these 5 ETFs have very strong 3-digits performance over the past years and managed to outperform the market in the medium term.

Such portfolios may favour investors with a time horizon of 10 years or longer, focuses on capital appreciation and does not care about short-term volatility.

They are bullish about the future of innovation and technological advancements, but at the same time wants to diversify through the use of ETFs as they are not confident with their stock picking or too busy to research on individual companies.

As of 20 June 2021

Year-To-Date return wise, it may not look that great because of the shift from Growth towards Value on Wall Street, and also the fear from the Federal Reserves’ rate hikes and tapering measures that can spell bad news for growth stocks that are yet to be profitable.

However, I personally think this is a good chance to enter as such huge momentum shifts are rare, and may present itself as a bargain for long term investors. (Not financial advice!)

Portfolio 2: The “Community-Pick” Portfolio

As of 20 June 2021

1. Bitcoin – 20% (Crypto)

2. Ethereum – 20% (Crypto)

3. Tesla – 20% (Stocks)

4. Apple – 20% (Stocks)

5. Zilliqa – 20% (Crypto)

Total: $100,000 USD

*Slight deviation due to crypto prices

Portfolio’s Reasoning

This portfolio was voted by the Seedly Community based on the questions shown above.

The most popular options were surprisingly Bitcoin, Ethereum and Tesla. While Tesla wasn’t surprising, I was amazed at how many people actually preferred crypto as their top 5 picks for the challenge instead of stocks or ETFs.

Looks like the paradigm shift is happening faster than I expected.

This portfolio consist of a total of 2 stocks, represented by large cap companies Apple and Tesla. The other 3 consist of Bitcoin, Ethereum and Zilliqa, with the first 2 being the largest cryptocurrencies and Zilliqa as the wild card.

A short primer on Zilliqa (ZIL)

For those who don’t know what Zilliqa is, it is a high performance blockchain that was the brainchild of a group of PhDs in academia, from the National University of Singapore (NUS). It was later developed into a bigger project and is currently the only blockchain with sharding technology built-in from the beginning.

Sharding, basically solves the blockchain trilemma of Scalability, Security and Decentralisation.

The picks are very well thought out in my opinion, and shows the conviction that Seedly users have in blockchain technology as well as large-cap growth companies like Tesla and Apple.

Return potential wise, it is a strong contender for sure and the investment thesis is similar to portfolio 1, since it is likewise bullish on technological advancements, with an emphasis on the Apple ecosystem and the future of EV (Electric Vehicles) technology and renewable energy.

Bitcoin and Ethereum are strong contenders over the long term given their position as the top 2 crypto out there and Zilliqa might see explosive gains if network effects were to deepen further. (Due diligence required)

As of 20 June 2021

Year-To-Date return wise, the community picks are currently outperforming the market by a significant margin!

Sometimes picking the brains of community members and cutting your research time by half may be a good strategy eh? I’m just joking. Please do your own research when it comes to any form of investments!

It remains to be seen which position will breakout and carry this portfolio, but my bets would be on Ethereum.

Regardless, a strong portfolio in my opinion.

Portfolio 3: 100% Crypto Picks (By yours truly)

As of 20 June 2021

1. Ethereum – 20%

2. Fantom – 20%

3. Sushiswap – 20%

4. Binance Coin – 20%

5. Chainlink – 20%

Total: $100,000 USD

*Slight deviation due to crypto prices

Portfolio’s Reasoning

This portfolio is 100% crypto, so there needs to be extreme conviction about the future of cryptocurrencies and understanding of the fundamentals of each crypto token above.

Do note that I did not choose Bitcoin for this portfolio, because the goal was to maximise returns potential on my high conviction bets of crypto’s future. They are also classified as alt-coins, and extreme volatility on gains and loss should be expected.

The volatility will be much higher if you were to compare it to portfolio 1 and 2, and by picking portfolio 3, is like becoming a venture capital looking for the next 10X or 30x potential return on capital.

While the portfolio consist of crypto blue-chips such as Ethereum, Binance Coin and Chainlink, we have smaller-cap crypto such as Fantom and Sushiswap in the mix.

They are the potential “Ten-Baggers” opportunities that I am bullish on as Fantom is already seeing widespread real world adoption in the Middle East, in talks with the United Nations to adopt their blockchain for their CBDC Stablecoin, and increasing awareness and adoption from DeFi users after the disappointing congestions on Polygon and Binance Smart Chain.

Why Fantom? Try googling “What is the fastest blockchain in the world” on Google 🙂

As for Sushiswap, the younger brother of Uniswap, present itself as a multi-chain Decentralised Exchange (DEX) that exist on almost every blockchain. The potential for Sushiswap is huge and looks undervalued based on their transaction volumes and market cap. Please do your own research if you are interested in Sushiswap!

Return potential wise, I am confident that this portfolio will not only outperform benchmark indexes like S&P 5oo, but to outperform the other 2 portfolio on this list as well.

If I were to start investing all over again with the knowledge and experience I have gained so far, I would pick Portfolio 3 for sure.

Aside from the sharp drawdowns and short term volatility which will be expected from this portfolio, long-term wise, I am sure this portfolio will be able to yield me handsome returns in the long run.

So lets see if the community picks do better, or maybe I’m just a bad investor, haha!

As of 20 June 2021

Year-To-Date return wise, this portfolio is not only crushing the market like a piece of cake, it will be a ~3X return on capital if you started investing into this portfolio on 1 January 2021. Yeah, I feel you, should have done that right?

Hindsight bias at play.

Instead of FOMO-ing, you should be doing your due diligence and find undervalued gems when the market is screaming fear and there’s “blood in the streets.”

What this means is, it is the best time to accumulate when others are feeling bearish and fearful of the market because, only when there is a dump, will there be a pump.

You can’t expect prices to keep going higher without experiencing a correction first. Investment returns in risk-on assets are bound to see ups and downs.

In fact, prices going down actually lowers the risk of a huge crash, and increases your margin of safety greatly over the long term, not the other way round.

The next time you feel fearful about buying, just think about this sentence. (Of course you need to make good investment decisions, this does not apply for meme stocks/crypto or sh*tcoins with no fundamentals)

Whether or not this portfolio continues to crush the market like it currently is, depends on Bitcoin’s price movements though.

After all, majority of crypto’s market cap resides in Bitcoin, so if Bitcoin were to dump, alt-coin prices will dump even harder. (Reverse is also true)

If Bitcoin manage to maintain its momentum and breakout from the current sideway market it is stuck in, then it is almost certain that this portfolio will continue to dominate returns wise.

So Which Portfolio Will Win?

Now that the 3 test portfolios have been constructed, we shall see which portfolio will rake in the highest alpha.

No one knows the future, and no one has a crystal ball. Only time will tell which of them outperformed the market (and by how much).

The stocks vs crypto argument shall be tested in this little experiment too, as I will be tracking this portfolio closely. If crypto were to really outperform stocks by a huge margin, I might just convert to a 100% crypto portfolio myself. Only time will tell.

So which side did you pick? Stocks? Or Crypto? Or ETFs? What is your long term outlook on the market? Leave those comments down below!

For those who are already into Crypto

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What is Bitcoin? Answers here

Or do your due diligence on Bitcoin in my post here where I debunk some of the myths regarding Bitcoin.

Gemini Exchange (My Favourite Crypto Exchange)

Also my crypto exchange of choice Gemini here if you are looking to buy your first crypto!

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What is Decentralised Finance (DeFi)?

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How to Value Crypto Assets?

Learn more about how you can put a “fair value” on crypto such as Bitcoin, Ethereum and more here!

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StocksCafe

I use StocksCafe to keep track of all my investments + research on stocks. You can also view my portfolio as well as many others so you can compare your own performance with other investors. If you are interested in signing up, you can use my referral link to sign up and access premium features for 1 extra month for new users. (3 months)

The Power of Low Fees

One huge advantage I have as an investor is paying very minute fees which can really eat into returns in the long run because I am using Firstrade to buy US Stocks which has absolutely $0 fees and extremely fast wire transfers for deposits and lightning fast trade executions.

Ever since I switch to Firstrade last year as my main investment vehicle, I saved up on a ton of fees and hence able to achieve way better returns than before. I saved up more than 5 times the fee paid in 2018, 2019 and 2020 this year due to the switch and I am really happy thus far.

Of my entire investments in 2020, fees only take up 0.1% of my entire portfolio! (2018+2019+2020 combined across all brokers and Robo)

Alright that’s it! For now, think long term, tune out the noise and avoid the temptation of gambling meme stocks, think of the companies that will do well in the long run simply find bargains/dollar cost into your positions. If you need some inspiration for companies to research, you can check out my post on 5 stocks to buy if the market crashes here.

Disclaimer:

The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. In fact, the content is not directed to any investor or potential investor and may not be used to evaluate or make any investment.

Do note that this is not financial advice. If you are in doubt as to the action you should take, please consult your stock broker or financial advisor.