The FTSE has had a rocky start to 2020. It started with tensions between the US and Iran that could easily have escalated. Coronavirus and its attendant risks slowed down global business shortly afterwards, and continue to do so. As a result, the post-general election gains have been all but wiped out.
Cash ISAs carry hidden risk
At times like these, it’s most tempting to consider other popular investing options like Cash ISAs and property. Neither is without its challenges though. Consider Cash ISAs. A few offer an interest rate of 1.5% at the most right now. The inflation rate, based on consumer prices, was at 1.4% in December. So if I put my money in a Cash ISA, I barely earn a return in real terms. This is because prices have risen almost as fast as the interest rate (and faster than the lower rate offered on some Cash ISAs). So, I am no better or worse off than I was at the start of the year. And what if the inflation rate were to rise even higher (like it did in January)? Then investing in a Cash ISA actually reduces my real income.
Buy-to-let may be a let-down
Now consider buy-to-let property. According to news reports, landlord numbers have hit a seven-year low in the UK, as have the number of privately rented homes. Increased taxes and lower incentives have made property purchases less attractive. This adds to the potentially extensive time and effort required to buy a property in any case. With some signs of a pick-up in the property market, it might look like a good idea. But I would prefer to consider alternatives as well.
The rising stars
Let’s start with an amount of £10,000, which is a reasonable amount to consider as a downpayment for a property purchase in some areas. Can I make a million investing in the stock market instead? The answer is yes, but investing in high-performing stocks is key. Online retailer Ocado, whose share price has tripled over the past five years and JD Sports Fashion, which earned a place in FTSE 100 last year, are good examples. My capital can appreciate to £1m in 25 to 30 years if these stocks continue or even slow-down slightly from their past performances.
The catch however, is that it’s easy with hindsight. It may not be as easy to make timely stock purchases without the benefit of hindsight. But I would keep an eye out for high-performing FTSE 250 stocks, which may well be among FTSE 100 constituents in the future. It’s a good idea to to assess my portfolio for the best possible returns every few years. This gives me the opportunity to buy some of these stocks when they-re still on a steep rising curve, while selling any under-performers.
Providing a cushion
It’s also advisable to hold shares that provide steady growth and have shown stability over the years, in case some investments don’t yield the desired returns. FTSE 100 shares are a good place to look for these. Drinks giant Diageo is one example. Property developer Barratt Developments is another. A combination of high growth and stable stocks, should hold us in good stead.
