Forget Bitcoin: Here’s How to Build Wealth Without Excessive Volatility

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy conceptBusinessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept

Bitcoin, or Millennial Gold, as some like to call it, isn’t doing a very good job of acting like a gold alternative. Gold is a lowly correlated alternative asset that tends to hold its own when the markets head south. In the latest rounds of market volatility, Bitcoin has failed to demonstrate that it can be a suitable gold replacement, as it not only was unable to hold its value amidst market turmoil, but it’s also amplified the magnitude of downside relative to certain stock market indices.

Bitcoin traded like a stock amid the February-March sell-off, and it’s doing so again in this September stock market pullback. Until Bitcoin can prove it a lower correlation to the stock market in corrections or crashes, the concept of replacing gold with Bitcoin, I believe, will continue to be a dangerous one that could leave many young investors in hot water.

With the markets and Bitcoin on retreat again, I’d like to point investors to low-beta defensive stocks that make for a better hedge against excessive volatility.

<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Hydro One: A better way to play defence than Bitcoin” data-reactid=”26″>Hydro One: A better way to play defence than Bitcoin

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Hydro One (TSX:H) is an electricity transmission and distribution utility that has a virtual monopoly in its home province of Ontario. Given Hydro One’s monopolistic position, its operating cash flows are guarded by sky-high barriers to entry.” data-reactid=”27″>Hydro One (TSX:H) is an electricity transmission and distribution utility that has a virtual monopoly in its home province of Ontario. Given Hydro One’s monopolistic position, its operating cash flows are guarded by sky-high barriers to entry.

Being a monopoly-like play can come with its own share of disadvantages, though, especially when it comes to growth. Regulatory barriers can stand in the way of growth initiatives, and with no real growth outlet, a name like Hydro One is destined to be a stalwart with little in the way of growth. Despite the meagre growth expectations, Hydro One is a concrete way to play defence with a portfolio that’s already heavily exposed to “risky” securities.

Hydro One sports a mere 0.22 beta, meaning shares are more likely to zig when the markets zag. With a bountiful 3.7%-yielding dividend, Hydro One is a far better way to defend one’s wealth in the face of economic crises relative to the likes of Bitcoin or any other cryptocurrency that will likely mirror the stock market on the way down.

<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="BMO Low Volatility Canadian Equity ETF: ZLB to the rescue” data-reactid=”30″>BMO Low Volatility Canadian Equity ETF: ZLB to the rescue

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="If you seek a one-stop-shop type of low-volatility investment, the BMO Low Volatility Canadian Equity ETF (TSX:ZLB) may be more your cup of tea. The ETF consists of a basket of high-quality low-beta securities, many of which sport bountiful dividends that act to smoothen the market rollercoaster ride further.” data-reactid=”31″>If you seek a one-stop-shop type of low-volatility investment, the BMO Low Volatility Canadian Equity ETF (TSX:ZLB) may be more your cup of tea. The ETF consists of a basket of high-quality low-beta securities, many of which sport bountiful dividends that act to smoothen the market rollercoaster ride further.

As I mentioned in a prior piece, the ZLB, like Bitcoin, didn’t do a good job of holding its own during the coronavirus sell-off, as there was a cash crunch that left few, if any, places to hide from the horrific volatility. Amid the latest September sell-off, the ZLB held its own rather well and is within just 2% of its six-month high.

For the low degree of correlation, you’ll have to pay up a 0.39% MER, which may or may not be worthwhile depending on the amount of capital you’re looking to put to work.

If you’re a smaller investor who has steep commissions, the ZLB is well worth the price of admission if you need to calm your stomach in this ridiculously choppy stock market.

The post Forget Bitcoin: Here’s How to Build Wealth Without Excessive Volatility appeared first on The Motley Fool Canada.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="More reading” data-reactid=”36″>More reading

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Fool contributor Joey Frenette has no position in any of the stocks mentioned.” data-reactid=”44″>Fool contributor Joey Frenette has no position in any of the stocks mentioned.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The Motley Fool’s purpose is to help the world invest, better.&nbsp;Click here now&nbsp;for your free subscription to&nbsp;Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2020” data-reactid=”45″>The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2020

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