Forget gold, Cash ISAs and buy-to-let! I’d buy FTSE 100 dividend shares to retire early

The FTSE 100 (INDEXFTSE:UKX) could be an attractive buying opportunity in my opinion.

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 FTSE 100’s recent decline is likely to dissuade many investors from buying shares. After all, it has fallen by over 20% from its recent peak and could experience further challenges as risks such as coronavirus and an oil price war continue.

However, assets such as gold, buy-to-let and Cash ISAs may not offer the same level of return as FTSE 100 shares in the long run. As such, in terms of long-term retirement planning, now may be the right time to buy a diverse range of large-cap shares. They could help you to retire early.

Recovery potential

One of the core aims of most investors is to buy when the stock market is low, and sell when it is high (although at The Motley Fool we also like to hold for the long term). While that sounds easy in theory, in practice it is much more challenging. A key reason for this is that for stock markets to be priced at a low level, there usually needs to be a significant amount of risk, fear and uncertainty ahead in the short run. This often causes investors to adopt a cautious approach to shares, and instead purchase other assets.

However, investors who are able to look beyond those challenges and instead focus on the long-term prospects for the FTSE 100 can capitalise on low valuations. Although they may not experience large levels of profit in the near term, this is unlikely to be a major concern if they have a time horizon of many years until they retire.

Furthermore, the FTSE 100 has a strong track record of recovering from its various downturns and bear markets. Among the worst of them was the 1987 crash, which included the largest one-day fall in the FTSE 100 of over 12%. Since then, though, the index has delivered high returns and helped many investors to retire early.

Relative appeal

Assets such as gold, Cash ISAs and buy-to-let properties may seem appealing at the present time. However, gold is trading at a seven-year high. This suggests that it may not offer good value for money.

Likewise, house prices in the UK are close to record highs when compared to average incomes. This may mean there are affordability issues ahead should interest rates rise in the coming years. And with the returns on Cash ISAs being less than inflation in many cases, they may fail to provide a boost to your retirement prospects.

As such, buying cheap FTSE 100 dividend shares could prove to be a shrewd move. They appear to offer excellent value for money in many cases, while their dividends could provide a boost to their total returns in the long run. Ultimately, there may be further uncertainty ahead that leads to paper losses for investors. But over the long run, buying cheap shares could positively impact on your retirement prospects.

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.

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Dividend Shares

Here’s a simple 4-stock dividend income portfolio with a 7.8% yield

With these four British dividend stocks, an investor could potentially generate income of around £780 a year from a £10,000…

Read more »

A young black man makes the symbol of a peace sign with two fingers
Investing Articles

2 FTSE shares that could get hit by Trump tariffs

Many FTSE shares rely on the US for business and the potential introduction of tariffs on foreign imports could hurt…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Finding shares to buy can be complicated. Here’s a lesson from the US election

Identifying shares to buy is difficult. But Stephen Wright thinks monitoring what directors buy might be an under-appreciated source of…

Read more »

Investing Articles

What makes a great passive income idea?

Christopher Ruane earns passive income by owning blue-chip shares like Legal & General. Here's the decision-making process that helps him…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

Here’s how I’d try and use an ISA to become a multi-millionaire!

Could our writer build his ISA to a multi-million pound valuation? Potentially yes -- and here is how he'd go…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

2 UK shares I wish DIDN’T pay dividends

UK dividend shares can be a great source of passive income. But sometimes, the best thing for a company to…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How to invest £800? I’d use these 3 Warren Buffett principles!

Christopher Ruane shares three lessons he has learnt from investing guru Warren Buffett that he hopes can help him invest,…

Read more »

Investing Articles

2 UK stocks with outstanding growth prospects

When it comes to growth stocks, the key's finding a company with a strong competitive position. And the FTSE 100…

Read more »