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Forget buy-to-let! Here’s how I’d invest £10k today to retire on a passive income

The recent volatility experienced by the stock market may have caused some investors to determine that buy-to-let investments offer a superior risk/reward opportunity compared to FTSE 350 shares.

However, the FTSE 100 and FTSE 250 both appear to offer good value for money, since many of their members have high yields and low ratings. This compares favourably to house prices, which are close to record highs, matched up against average incomes.

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As such, now may be the right time to invest £10k, or any other amount, in a range of FTSE 350 shares. They could improve your long-term financial prospects and enable you to retire on a generous passive income.

Uncertain outlook

Clearly, the near-term prospects for the stock market are highly uncertain. They were already difficult to accurately predict before the coronavirus outbreak, since the US and UK face political risks in 2020. However, with China’s economy expected to experience a slower rate of growth in the coming months, and the eventuality for coronavirus outbreaks to continue and grow elsewhere, the stock market may experience a challenging period.

This, of course, could represent a buying opportunity for long-term investors. The FTSE 100 and FTSE 250 have experienced difficult periods in the past, including corrections and bear markets, yet they have always recovered to post new record highs. Therefore, while the indices offer high yields, low valuations, and a range of high-quality businesses, now could be the time to capitalise on their attractive risk/reward ratios.

Slow growth

Although the world economy may experience a period of slower growth in the near term, its long-term prospects seem to be bright. Major economies such as China and the US have solid fundamentals, and look set to return to improving growth rates over the medium term.

The UK housing market, however, may fail to deliver strong capital returns for property investors. High house prices are being supported by low interest rates. While there’s little sign of an impending increase in interest rates in the short run, they seem highly likely to rise in the coming years. This could make house prices unsustainable at their current levels, and may lead to a lack of capital growth potential.

Risk/reward

Therefore, investing in the stock market seems to be a better idea than undertaking a buy-to-let at the present time – even with the ongoing short-term risks from coronavirus.

The stock market may not produce strong returns in the short run, due to the uncertainty surrounding the world economy and the potential for investor sentiment to weaken. But low valuations, the FTSE 350’s track record of recovery, and the high level of house prices across much of the UK mean the stock market could offer a superior means of obtaining a growing passive income in retirement.

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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.