While speculating on the gold price and forex trading can seem to be exciting, ultimately they could lead to disappointing returns for many investors. One reason for that is the difficulty of accurately and consistently predicting the price movements of any asset, with there being a large number of variables that could impact significantly on their performance.
By contrast, investing in FTSE 100 income shares could prove to be a more profitable move in the long run. It may lack the excitement and potential to generate huge returns in the short run. But it could prove to be a superior opportunity – especially with the FTSE 350 appearing to offer a wide margin of safety at the present time.
Speculating versus investing
While anyone can speculate on any asset, it seems as though very few people are able to generate consistently high returns from doing so over the long run. In fact, continually making the right calls on assets such as gold and forex, which can be highly volatile and unpredictable, seems to be an unlikely outcome for even the most experienced of investors.
As such, focusing on the long-term performance of asset prices could be a better idea. In other words, investing in assets, rather than speculating on their short-term performance, could lead to higher profits in the long run.
In fact, the most successful investors of all time have largely been individuals who take a long-term view on wealth accumulation. Investors such as Warren Buffett and Charlie Munger generally hold positions in companies for many years, and in some cases never contemplate selling them. This provides those companies with the time they require to implement a new strategy, for example, or to allow their competitive advantage versus sector peers to have a real impact on their financial performance.
The current volatility in the FTSE 100 presents an opportunity for investors to buy high-quality businesses on low valuations. For example, the FTSE 100 has a dividend yield of over 4% at the present time, which suggests that it offers good value for money. And with many of the index’s members forecast to post impressive increases in their dividend payments over the long run, investors may be able to capitalise on high dividend growth rates.
Over time, this may lead to impressive total returns. Dividends have historically made up a large proportion of total returns and, when compounded, they could have a significant impact on your financial future.
As such, while speculating on gold and forex can be exciting, it may be prudent to focus your capital on large-cap dividend shares. Ultimately, doing so may provide a higher chance of meeting your financial goals, such as paying off your mortgage or retiring early, than betting on the short-term price movements of assets that are exceptionally difficult to accurately predict.
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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.