Investing in buy-to-let property has been a popular means of planning for retirement over the last few decades. Many property investors have seen the value of their portfolios rise as constrained supply and high demand for property have sent house prices moving higher.
However, accessing the potential of the property market is difficult for most people. It requires a significant amount of capital that may take a large number of years to build up. This can mean that many people miss out on the growth potential offered by property.
By contrast, the FTSE 100 is highly accessible. Anyone can invest modest amounts of capital on a regular basis to benefit from the index’s high-single-digit annual returns. Therefore, it could be a better means of building your retirement nest egg.
With the average price of a property in the UK currently standing at around £232,000, investing directly in bricks and mortar will require a large deposit. This may be around 25% of the purchase price in many cases, which could be over £50,000 on average.
For most people, saving up that amount of capital could take a considerable amount of time. In the meantime, house prices could move higher and the return on cash savings may not keep up with them. This may mean that becoming a buy-to-let investor takes longer than expected.
By contrast, investing in the FTSE 100 is easy for the vast majority of people. With online share-dealing having become increasingly prevalent in recent years, it is possible to regularly invest as little as £25 per month. This allows individuals who have modest amounts of capital to take advantage of the stock market’s high annual returns. Over time, the impact of compounding could be significant, and may lead to a sizeable retirement nest egg.
Now may not seem to be the right time to buy FTSE 100 shares. The index faces a number of risks that could derail its progress over the coming months. For example, geopolitical risks in the US, Europe and Asia are relatively high at the present time. They could lead to declining investor sentiment and weaker share price performances within the index.
However, such periods have historically proven to be a good time to invest in a diverse range of shares. The index is, by its very nature, highly cyclical. This means that it is normal for its price level to experience periods of decline and periods of growth. For a long-term investor, the former can provide opportunities to benefit to a greater extent from the latter. You just need to do your research and pick companies that have solid businesses, regardless of short-term woes.
As such, now could be a good time to start investing in FTSE 100 shares. They are far more accessible than a buy-to-let property and could offer strong returns in the long run due to the index appearing to be undervalued at the present time.
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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.