The Motley Fool

Forget buy-to-let! Here’s how I’d invest £20k today to make a million

Image source: Getty Images.

Buy-to-let investing has often been seen as an easy route to an improving financial future. While this may or may not have been the case in the past, today the opportunity to generate high returns on buy-to-let investments is relatively slim.

A key reason for this is tax changes that have stifled the returns available, while an unpredictable outlook for house prices may mean that the cyclicality of the property industry becomes increasingly relevant.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

As such, investing £20k or any other amount in the stock market could be a better idea. Not only does it potentially offer higher returns than buy-to-let, it may be a simpler and less risky means to generate £1m over the long run. And you do not need to take out a mortgage to do it.

Return potential

The return prospects of buy-to-let investments have been significantly reduced by tax changes in recent years. For example, an additional 3% stamp duty is charged on second-home purchases, while mortgage interest payments can no longer be offset against rental income for some landlords. In addition, the fall in house prices in some parts of the UK, notably London, has meant that many property investors have generated relatively low returns in recent years.

By contrast, the FTSE 100 and FTSE 250 appear to offer favourable prospects. When purchased through a tax-efficient account, such as a SIPP or a Stocks and Shares ISA, shares could offer higher net returns that a buy-to-let investment. Moreover, with both indexes yielding in excess of their historic averages, there appear to be significant opportunities to buy a wide range of high-quality companies while they trade on low valuations. This may lead to high returns over the long run.

Simplicity

As well as offering higher potential returns, investing in the stock market is far simpler than undertaking a buy-to-let. Online share-dealing means that an account can usually be opened in a matter of minutes, while it is possible to diversify geographically through buying stocks that have exposure to different regions.

Share-dealing has become cheaper in recent years, with features such as regular investing making it even more cost effective. By contrast, costs such as surveyor fees, legal costs and management expenses can mean that the net return on a property investment is lower than many investors realise.

Risks

The outlook for the UK economy continues to be highly uncertain. This could mean that confidence in the property market remains low, which could translate into a period of slower growth. This would not be a major surprise, since the property market is by its very nature highly cyclical. And since property prices are close to a record high when compared to average incomes, a period of reduced growth could be ahead.

As such, the risk/reward opportunity presented by the stock market could be more appealing than that of a buy-to-let investment. This may mean that now is the right time to invest in shares in order to boost your financial future and generate a seven-figure portfolio.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

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.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.