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Forget a Cash ISA, Bitcoin and gold! I’d aim to make £1m with this simple strategy

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While all asset classes have their pros and cons, some may be more appealing than others when it comes to building a £1m portfolio over the long run.

Although a Cash ISA, Bitcoin and investing in gold may seem to be appealing at the present time, the reality is that a buy-and-hold strategy that focuses on the FTSE 350 could be a more efficient means for investors to generate high returns in the long run.

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Not only could the FTSE 350 provide a more attractive risk/reward ratio than other assets, it may offer a more appealing experience on the part of the investor.

Pros and cons

While a Cash ISA may provide less risk than many other asset classes, its returns are exceptionally low. At the present time, obtaining a 1.5% interest rate is likely to be the best that savers can hope for through a Cash ISA. As such, the prospect of making a million from one seems somewhat challenging.

Although Bitcoin has enjoyed a surge in 2019, with it currently trading at over $11,000, it continues to have a highly uncertain future. Its limited size means that it may never be a viable alternative to traditional currencies, while regulatory risks remain high. Moreover, its volatility may mean that holding it is a rather unappealing prospect for investors who may worry about the ups-and-downs that it experiences over the coming years.

While gold may have some appeal at a time when global interest rates could fall and fears surrounding the global economy’s growth outlook are heightened, history shows that a portfolio of stocks has generally outperformed it over the long run. As such, while it could offer less risk than shares, its potential to produce a £1m portfolio could also be lower than the FTSE 350.

Buy-and-hold strategy

While a buy-and-hold strategy that focuses on the FTSE 350 can be subject to wild swings in value during bear markets and when recessions come along, over the long run it can generate relatively high returns. The FTSE 250, for example, has recorded an annualised 9% return over the last 20 years. Since its inception in 1984, the FTSE 100 is up by 8% per year when dividends are included. Although those returns may not be recorded in every year, over the long term, they may prove to be highly achievable for investors.

As such, buying a range of FTSE 350 stocks and holding them over the long run could offer impressive return prospects that improve your chances of making a million. Alongside this, the index offers the potential to achieve a significant amount of diversity. This could reduce risk and provide smoother returns for an investor, as well as offering the chance to gain exposure to fast-growing economies in order to potentially obtain a higher rate of return than the wider index.

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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.

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