Buying a rental property might seem like an excellent way to invest £50,000. Indeed, over the past few decades, buy-to-let property has generated a tremendous amount of wealth for investors.
However, recent tax and regulatory changes, as well as rising property prices, mean buy-to-let property is no longer the sure bet that it once was. Therefore, if you’re looking to invest a lump sum of £50,000 today, it might be better to look at other assets that might be more deserving of your money.
Stocks and shares
Investing in the stock market could be the best strategy to invest £50,000 to make a million over the long term. Since its inception, the FTSE 250 has produced an average annual return of 10% (even after recent declines). At this rate of return, it would take just 26 years to turn that initial investment into a million.
As we’ve seen over the past few weeks, there’s no guarantee the market will produce a return of 10% every year. Nevertheless, while it’s impossible to tell what the market will do in the short term, over the long run it’s highly likely that the stock market will head higher.
The stock market tends to track the performance of the global economy. It’s improbable the worldwide economy will be smaller in 10 years than it is today. As such, there’s a good chance the market will move higher during this time frame.
Buying the FTSE 250 isn’t the only way to invest in the stock market. Investors who want to own real estate can also purchase real estate investment trusts (REITs).
These publicly-traded vehicles allow any investor to buy a portfolio of properties at the click of a button. Shares in many of these trusts cost less than £5, which means you can invest with just a few pounds, excluding commission.
The great thing about REITs, compared to direct property investment, is that a team of professional investors manages them. Shareholders don’t have to worry about property maintenance, finding tenants, or changing tax laws. All you need to do is click ‘buy’, sit back, and relax.
Some REITs offer dividend yields of as much as 5%, at the time of writing. When combined with capital growth, there’s a good chance these investments could produce double-digit returns over the long run.
The bottom line
Overall, while buy-to-let property might look like an attractive place to invest a lump sum of £50,000, it’s worth considering other options before for taking the first step.
Stocks and shares could be a great alternative to rental property because they’ve produced a higher return over the long term. They also tend to require less oversight, and there’s no limitation to where you can invest.
For example, you could invest your £50,000 in American, European or Chinese stocks, or wherever you believe you can get the most bang for your buck. The possibilities are endless.
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Rupert Hargreaves owns no share 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.