Buy-to-let investments may have generated high returns for many people over the past decade. However, their appeal may now be relatively low due to factors such as an uncertain future for the UK economy and high house prices.
As such, buying FTSE 250 shares could be a better idea. Not only do they offer lower valuations than property in many cases, they provide significant international diversity that could reduce the risks facing your portfolio.
Additionally, buying FTSE 250 shares is a simple process that can be undertaken with modest amounts of capital. This means that it could be a better way of making a million compared to saving up for a deposit on a property and undertaking a buy-to-let.
Valuations
The FTSE 250 currently has a dividend yield of around 3%. This suggests that it offers good value for money compared to its historic level. Many of its members trade on price-to-earnings (P/E) ratios that are below their long-term averages. They could revert to their averages over the coming years and, in doing so, may produce impressive capital returns.
By contrast, house prices are now close to record highs when compared to average wages. Since no asset price has ever risen in perpetuity, it would be unsurprising for house prices to experience a period of slower growth that limits the returns available for buy-to-let investors.
International diversity
Political and economic risks facing the UK continue to be at relatively high levels. This situation may remain in place during 2020, as the Brexit process seems to not yet be clear. As such, investing in a mix of companies that operate in a variety of economies could be a sound move. It may help to reduce the overall risks facing your portfolio, and produce smoother long-term returns.
Since the FTSE 250 generates around half of its income from outside of the UK, it is a geographically diverse index. This could reduce overall risk, and also enable investors to capitalise on the growth potential of emerging economies such as India and China at a time when their economic forecasts are superior to those of most developing economies.
Simplicity
Buying a property is a long and challenging process. It can take many months to buy one as there are numerous additional costs involved in the process.
Buying shares, by contrast, is a simple process that can be completed in a matter of minutes. Online share-dealing has further simplified the process, as well as reduced its overall costs. This has made it far more accessible to a wider range of people.
Therefore, it is possible for almost anyone to benefit from the 9% annualised total returns delivered by indexes such as the FTSE 250 over the last 20 years. Similar returns could be ahead, making it a more attractive proposition than a buy-to-let property.
