FTSE 100 or buy-to-let: which could be safer in an economic crisis?

With fears over both house prices and the stock market, here’s my view on where your money could work harder for you.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The economy is stuttering and fears are rising that it might turn into a full-blown downturn. I can understand those fears. Unresolved levels of debt from the 2008 financial crisis are my main cause for concern and that doesn’t just mean UK consumer debt.

The situation in Italy looks unlikely to resolve itself and I think the country is likely to remain a problem until, perhaps, the euro is eventually abandoned. It is simply not feasible for countries like Greece and Italy with very traditional economies to keep up with the German economic powerhouse so the euro project is slowly becoming like those dishes from the other night you can’t face washing. You want to ignore them, but it’s getting harder to avoid the smell from the kitchen.

Rising US interest rates are making bonds more appealing resulting in money being moved out of stocks. This is being hastened by a US-China trade war which is sending shockwaves through to the UK because global markets are so interconnected. Brexit is also looming and could cause some panic in the short term, but over the longer term, I think any problems will be ironed out.

Safe as houses?

Which brings is to the point of this article. There are worries about the value of property in the event of a no-deal Brexit. Mark Carney, the Governor of the Bank of England, even suggested there could be a repeat of the last financial crisis with house prices falling by a third over the next three years. I’m not going to say this won’t happen, but unlike in 2008, at least politicians are in a position to prevent this. But whether they do or don’t, aside from having to put our faith in politicians, it is not a good time to be looking at entering the buy-to-let market anyway with stamp duty for a second home currently at 3%. This is on top of 5% stamp duty for homes in the £250,000 to £925,000 bracket. When you add agent fees, legal fees and other expenses, you need to be sure rental income will provide you with a good return after mortgage payments and maintenance. The bottom line is, the government is putting the squeeze on buy-to-let landlords.

Buy low, sell high

Shares have one big, instant advantage over buy-to-let as they are more liquid. It is much quicker and cheaper to sell a FTSE 100 share than a house if you need to access the money. And the drawbacks? They are more volatile as shown by the past month with the FTSE 100 losing around 10% of its value. While it’s certainly unpleasant to watch your holdings do this, it also presents good buying opportunities. There are no guarantees that the market won’t drop further, but it is important to remember that the FTSE 100 is falling based on fear rather than a recession. And in the words of Warren Buffett “be fearful when others are greedy and greedy when others are fearful”.

Both the FTSE 100 and buy-to-let could suffer in the event of worsening economic conditions, but I think the risks of investing in stocks are much easier to mitigate. When you also consider how much margins on buy-to-let are being squeezed by the government, I know where I’d rather have my money.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »