After the recent stock market crash, investors may consider assets such as buy-to-let property to provide a steady return. However, while the outlook for the FTSE 100 is uncertain in the short term, over the long run the UK’s leading blue-chip index may produce significantly higher returns and increase your chances of making a million.
FTSE 100 bargains
Buy-to-let property, as an asset class, has come under attack in recent years. The government has completely reorganised the tax regime for buy-to-let investors, removing many tax breaks and benefits investors previously enjoyed.
Rental properties now also have to conform to tighter regulations. These have increased the cost of doing business for the average landlord. Meanwhile, rising property prices have hurt returns.
Investing in the FTSE 100 has many advantages to owning rental property. Blue-chip stocks are even more attractive after the recent stock market crash.
The stock market has experienced many booms and busts over the past few decades. On every occasion, the FTSE 100 has recovered from its trough to go on to make a new peak. And while the outlook for the global economy is uncertain in the short term, it’s likely the FTSE 100 will return to this pattern in the long run.
To put it another way, after the recent market crash, the FTSE 100 may well go on to make a new all-time high.
Diversification
As such, now could be a great time to buy discount FTSE 100 shares. It’s unlikely you’ll time your purchase perfectly. Indeed, the coronavirus crisis is far from over, and there could be further economic pain ahead. However, in the past, buying a selection of stocks when they’re relatively cheap has always paid off as investor confidence has returned. It might take some time, but the same should happen this time around.
That said, some companies may not survive. So, I’d focus on buying FTSE 100 companies with strong balance sheets and loyal customers as well as defensive products. This will put them in a strong position to benefit from the economic recovery over the next few years. It should also help them weather the coronavirus storm if it lasts for many months.
It’s difficult to tell what sort of returns investors can look forward to over the next few years. But we do know that over the past century, UK equities have returned around 7% per annum on average. At this rate of return, I calculate it would take just 29 years to turn an initial investment of £100,000 into £1m with additional contributions of £250 a month.
These are just average figures, and you may be able to generate significantly higher returns buying individual FTSE 100 equities at depressed prices. And, unlike buy-to-let property, investors can also achieve significant tax benefits owning stocks and shares inside an ISA or SIPP.
