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Forget gold and Bitcoin! I’d follow these 3 simple steps to get rich and retire early

The price rises of gold and Bitcoin could attract many investors to them at the present time. After all, they made gains of 15% and 90% respectively in 2019, and have maintained their upward momentum so far in 2020.

However, there may be a superior means of generating a retirement nest egg, which provides a passive income in older age. Through buying a diverse range of undervalued FTSE 100 dividend shares, you could obtain a more attractive risk/reward ratio than buying gold or Bitcoin. In the long run, it could improve your chances of obtaining financial freedom in older age and may even help you to retire early.

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Low valuations

The track record of all assets shows that buying low and selling high has generally been an effective strategy through which to generate profits. As such, buying undervalued FTSE 100 shares could prove to be a better idea than purchasing gold or Bitcoin, since they may offer better value for money at the present time.

The uncertain prospects for the UK and European economies, as well as political risks in the US, mean that many sectors across the FTSE 100 contain stocks that have valuations that are considerably below their long-term historic averages. By contrast, gold is close to a seven-year high, while Bitcoin’s lack of fundamentals mean that it is impossible to accurately value. As such, the FTSE 100 could offer superior value for money compared to the precious metal and virtual currency.

Dividend stocks

While gold and Bitcoin do not provide an income, the FTSE 100 contains around 25 companies that offer yields above 5%. Therefore, an investor could build a portfolio that has a yield in excess of 6%, or even higher, depending on the stocks they choose to purchase.

The reinvestment of dividends has historically contributed a significant proportion of the index’s total returns. As such, focusing your capital on companies that have high dividend yields that are affordable and have the potential to rise at a faster pace than inflation in the coming years may be a worthwhile means of improving your long-term returns.

Diversity

Diversifying across a range of FTSE 100 shares could be a sound means of not only reducing risk, but also exposing your portfolio to strong growth areas in a range of geographies and sectors. With the cost of buying shares having fallen significantly in recent years, building a diverse portfolio is now more accessible to a wider range of investors.

Although gold and Bitcoin may have risen in recent months, factors such as a future increase in US interest rates and regulatory change could impact negatively on their performances. As such, from a risk/reward standpoint, now may be the right time to focus your capital on a diverse range of undervalued income shares within the FTSE 100.

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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.