Investing in gold has become increasingly popular during the course of 2019. A number of risks that face the UK and world economies mean investors have become increasingly risk averse over recent months. This has contributed to a rise in the price of gold of around 15% since the start of the year.
Looking ahead, the return potential of FTSE 250 shares could be more impressive than the outlook for the precious metal. The index’s low valuation, track record of growth, and its bright prospects could mean now is the right time to pivot from gold to mid-cap shares in order to improve your chances of making a million.
Valuation
The FTSE 250’s dividend yield of 3.1% suggests that it offers good value for money. The index is above its long-term average, which indicates there are a number of mid-cap shares that offer margins of safety at the present time.
In the short run, the UK faces a number of risks which could hurt the performance of the FTSE 250. For example, political risks and a slowing economic growth rate may contribute to volatility in the index due to it generating 50% of its income from the UK. In addition, the political and economic risks across countries such as the US and China may contribute to difficulties for the 50% of its income that is derived from outside of the UK.
However, the valuations of many FTSE 250 shares appear to factor in the risks they face. This suggests there may be buying opportunities at the present time, and that investors can use the cyclicality of the stock market to their advantage over the long run.
Track record
The FTSE 250’s track record highlights that it often experiences temporary periods of decline. They often last for a relatively short space of time before the index embarks on a bull run and a recovery takes hold. Interestingly, the index has always recovered from recessions and economic crises to post new record highs.
Despite it currently facing numerous risks that may hold back its performance in the short run, the index’s long-term growth potential seems to be high. Although there’s no guarantee it will overcome the present problems it faces, from an economic and political perspective, the mid-cap index’s track record suggests it’s highly likely a successful turnaround will take place over the coming years.
Future prospects
Therefore, buying a range of FTSE 250 shares could be a better idea than holding gold. Certainly, the precious metal may outperform shares in the short run, if the aforementioned risks come to fruition. But for long-term investors, periods of difficulty for the stock market present buying opportunities that can lead to higher returns in future and an increased chance of making a million.
