While living within your means is a great way to improve your financial future, investing your hard-earned cash in FTSE 100 shares could do likewise.
In fact, with interest rates forecast to stay at low levels over the medium term, the difference in returns between Cash ISAs and FTSE 100 shares may widen.
That’s especially the case since the FTSE 100 appears to offer good value for money at the present time, as well as growth potential.
As such, now could be the right time to switch from a Cash ISA to a diverse range of FTSE 100 stocks to boost your chances of making a million.
Cash ISA returns
At the present time, holding your spare capital in a Cash ISA is unlikely to yield a high return. The best you can hope for is around 1.5%, which is below the rate of inflation. This means that over time, the spending power of your capital is likely to decline.
This situation may remain in place over the coming years. Recent updates from the Bank of England have shown that they appear to favour a loose monetary policy to support the economy. A low rate of inflation makes interest rate rises even less likely, which is bad news for savers.
FTSE 100 growth potential
By contrast, the growth potential for the FTSE 100 seems to be high at the present time. Certainly, developed economies around the world are struggling to post strong growth rates, but emerging markets such as China and India are delivering high GDP growth rates that could mean the FTSE 100’s international exposure is a boon for investors.
Additionally, the index’s members appear to trade on valuations that are below their historic averages in many cases. This signifies that there is scope for investor sentiment to improve significantly over the coming years should economic risks fail to fully materialise.
Those economic risks, such as a global trade war, Brexit uncertainty and a slowing eurozone economy, may mean that there is a risk of capital loss in the short run for investors in shares. However, they could present improved buying opportunities for long-term investors who are able to live with a period of uncertainty.
In fact, history shows that the most profitable times to buy shares are when there are risks facing the world economy. Obtaining a diverse range of companies at such times can lead to an improved risk/reward ratio for investors, since they are able to buy high-quality stocks while they trade at wider discounts to their intrinsic values.
Therefore, while a Cash ISA may seem to be a safer investment at the present time, FTSE 100 stocks may improve your chances of generating high returns. Over the long run, this could lead to a seven-figure portfolio that significantly improves your financial future.
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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.