Many investors may view the FTSE 100’s recent fall as a reason to become increasingly cautious about its prospects. After all, further declines in its price level could be ahead as coronavirus impacts negatively on the world economy.
As such, they may be tempted to focus their capital on buy-to-let properties due to them potentially offering less volatility.
However, the FTSE 100’s valuation suggests that now could be an opportune moment to buy large-cap shares. Long-term investors may benefit from the index’s recovery potential, with it having the capacity to improve your retirement prospects to a greater extent than undertaking a buy-to-let investment.
The FTSE 100 could realistically fall in the near term. As such, buying today carries the risk of experiencing paper losses.
However, the prospects for UK house prices are also highly uncertain. At the present time they are close to a record high when compared to average incomes. This means that their affordability may be low in many parts of the UK, with them being dependent on factors such as continued low interest rates and government policies such as Help to Buy.
Neither low interest rates nor Help to Buy are likely to last in perpetuity. Therefore, the capacity for house prices to move significantly higher may be somewhat limited. This may mean that the profits available on buy-to-let investments are less attractive than many would-be property investors currently realise.
Buying any high-quality asset while it offers good value for money can increase your chances of making a profit in the long run. As such, now could be the right time to buy FTSE 100 shares while many of them trade on valuations that are lower than their historic averages. The index itself has a dividend yield in excess of 5%, which is close to its record high. This suggests that large-cap shares offer significantly greater capital growth potential than property.
Furthermore, the FTSE 100 has a strong track record of delivering successful recoveries from its difficult periods. It has overcome two bear markets in the past 20 years, namely the tech bubble and global financial crisis, to post record highs. Although it may take time to do likewise following the coronavirus outbreak, a turnaround seems likely over the coming years.
As mentioned, there is a risk that the FTSE 100 index will move lower in the short run. This risk cannot be diversified away through buying multiple stocks. However, investors who have a long time horizon are likely to have sufficient time for their investments to recover from short-term corrections and even bear markets.
Therefore, if you have many years left until you plan to retire, an investment in FTSE 100 shares could be a logical move. It may outperform a buy-to-let investment and increase your chances of retiring early.
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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.