Forget buy-to-let: I’d rather buy FTSE 100 stocks to get rich and retire early

The FTSE 100 (INDEXFTSE:UKX) appears to offer a more favourable risk/reward opportunity than buy-to-let 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.

It’s a challenging time to be a buy-to-let investor. House prices are moving lower in many parts of the UK, tax changes are reducing net returns for many landlords and economic uncertainty may mean that the growth prospects for the industry are more limited than they have been in the past.

As such, investing in property to try to boost your wealth in order to retire early may not prove to be a worthwhile move at the present time.

Although the FTSE 100 also faces an uncertain future due to the prospect of a major global trade war, it could offer better value for money and stronger growth prospects than buy-to-let investments.

Growth potential

The potential for capital growth within the property industry appears to be relatively low at the present time. House prices are close to record multiples when compared to average incomes, which historically has been followed by a period of slower growth or even decline.

Furthermore, an uncertain period for the UK economy could mean that confidence among first-time buyers is lower than it otherwise would be. Despite policies such as Help to Buy being available, house prices could continue their recent fall as increases to stamp duty and other tax changes limit the appeal of the sector to investors.

Although the FTSE 100 could be impacted in the near term by Brexit, a number of the index’s members are forecast to post strong growth in the medium term. This could translate into rising valuations, while a weaker pound may produce positive foreign currency translations for those large-cap shares that operate internationally but report in sterling.

In addition, the FTSE 100 trades at a price level that is less than 10% higher than 20 years ago. While the index may have been overvalued in 1999, its cyclicality suggests that today could be an opportune moment to buy blue-chip stocks.

Risk reduction

Diversifying in direct property investments is challenging. It requires a large amount of capital that may not be available to many investors. As such, many buy-to-let investors have a small number of properties on which they are reliant to build their long-term wealth.

This poses significant risks, since void periods, repairs to a property or a failure to pay rent by a tenant can have a damaging impact on an investor’s financial future.

By contrast, buying a range of FTSE 100 shares is affordable for many investors, with a modest amount of capital being required in order to build a diverse portfolio. This could reduce risk when compared to having a limited number of buy-to-let properties.

Takeaway

While taking on a buy-to-let investment may continue to be popular among many investors, the risk/reward ratio from buying FTSE 100 stocks appears to be much more appealing. As such, now could be the right time to buy large-cap stocks while they trade on relatively modest valuations and have impressive growth outlooks.

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

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »