If you’ve £20,000 to invest this year, you won’t be short of choice. Bitcoin, gold and buy-to-let will tempt those who are looking to build wealth for the future. However, while all three have done well at certain periods during the last decade, this isn’t where I’d invest my £20k for 2020 and beyond.
The days when crypto-currencies such as Bitcoin offered a fast-track to riches are now largely over. They will surge from time to time, as Bitcoin has done over the last month or so, but remain too volatile to be relied upon. Warren Buffett has called cryptos an “unproductive asset” and as far as I can see, that hasn’t changed.
All sorts of things could derail Bitcoin, such as anger over its energy consumption, a regulatory crackdown, or concern that it’s too easy to lose your stake, either through fraud or by being locked out of your account. They are too risky and volatile for me.
Investors rush into gold after every geopolitical threat, such as the US-China trade war or stand-off with Iran, but it still doesn’t tempt me. The precious metal doesn’t pay any income, unlike dividend-paying stocks and shares, so you’re dependent on the price continuing to rise, and it could just as easily fall. History shows the gold price is also highly volatile, plunging when confidence returns.
Some may still find buy-to-let property tempting, especially with interest rates low. However, the years of rapid house price growth seem to be over, and the Government crackdown is beginning to bite, as the stamp duty surcharge and phasing out of mortgage interest tax relief will eat into your profits. Plus there’s a growing amount of red tape. Buy-to-let is now too much effort for me.
This is how I’d invest £20k in 2020
For me, the stock market is still the best place to put your money. Last year, global shares rose by around 25%. While they may not repeat the trick this year, over the longer run, markets have given impressive average growth of between 7-10% a year.
If you want to buy individual stocks, I’d invest like this…
First, I’d build a portfolio of top FTSE 100 dividend and growth stocks, such as Aviva, Diageo and Unilever, to create a stream of passive income that rises every year. You could supplement this with an exchange traded fund (ETF) tracking the entire index.
Next, I’d spread my wings to buy top US stocks, for example, Apple or Amazon (both of which Buffett owns), supplemented by top FTSE 250 stocks, such as Dunelm Group or Greggs.
Naturally, I’d invest inside a Stocks and Shares ISA, which allows you to invest up to £20,000 this financial year and take all your returns free of tax, for life.
This combination of tax-free capital growth and passive income is the best way to achieve financial freedom, in my view.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon, Apple, and Unilever. The Motley Fool UK has recommended Diageo. 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.