Since the start of 2020, the price of gold has risen by around 4%. In the near term, it could continue to be popular among investors due to its defensive characteristics and the prospect of continued low interest rates in the US.
While this may mean that some investors consider its purchase, since it could realistically make further gains in the short run, a better idea for long-term investors may be to purchase FTSE 100 shares.
In many cases they offer wide margins of safety, growth potential and impressive yields that could help you to make a million in the long run.
The gold price now trades at its highest level in almost seven years. By contrast, the FTSE 100 is currently around 5% down on its record high. The index has a dividend yield of 4.4%, which is above its long-term average, while many of its members have ratings that are lower than they have averaged over recent years.
This suggests that large-cap shares could offer good value for money at the present time. They may incorporate margins of safety due to investor concerns about the outlook for the world economy, with risks such as US political uncertainty and the impact of coronavirus on global supply chains and consumer sentiment having the potential to hurt GDP growth. This could enable investors to purchase shares in a diverse range of companies while they offer favourable risk/reward ratios.
Gold’s price, meanwhile, may already include a premium for investor concerns regarding the world economy and the prospect of low US interest rates being maintained. In the long run, both of those factors are likely to change, with investor sentiment likely to improve and interest rates set to rise. As such, the FTSE 100 may offer greater scope for capital growth than gold in the upcoming years.
As well as long-term growth potential, the FTSE 100 offers a significant income return at the present time. The index currently yields 4.4%, although it is entirely possible for an investor to build a diverse portfolio of large-cap shares that have a combined yield that is in excess of 5%. Since the reinvestment of dividends has historically contributed a large proportion of the index’s total returns, this could mean that there are buying opportunities for growth, as well as income, investors.
Gold, meanwhile, does not provide an income return for investors when held in physical form or through buying an ETF. As such, buyers of the precious metal are entirely reliant on its capital returns. Since it currently trades at a high level and the FTSE 100 offers a wide range of income and growth opportunities, now could be the right time to focus your capital on equities, rather than the precious metal. The FTSE 100 could offer a better chance of generating high returns in the long run and may boost your prospects of making a million.
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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.