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Forget gold and Bitcoin. I’d buy crashing FTSE 100 shares in an ISA to retire early

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The FTSE 100’s decline over recent weeks may cause some investors to believe gold and Bitcoin offer superior investment potential. After all, the price of gold has risen to its highest level since 2013 over recent months. Meanwhile, Bitcoin could offer lower correlation with the wider economy, according to some investors.

However, the long-term prospects for the FTSE 100 could be more attractive than gold and Bitcoin. The track record of the stock market shows it has long-term recovery potential. This means investors who buy now may benefit from low valuations which could help them retire early.

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Gold/Bitcoin risks

Gold may continue to be popular among investors in the short run, due to its defensive status.  Historically, it’s been a store of wealth and could even deliver further growth if investor sentiment continues to be relatively weak.

However, history also shows investor sentiment is likely to improve over the medium term. This may mean demand for gold moderates to some degree. Its price could also fail to generate similar growth experienced over recent months. Furthermore, buying any asset while it’s trading at a multi-year high may not offer the best chance for an investor to make a profit.

Bitcoin’s potential could be limited by its regulatory risks, as well as its lack of real-world usage prospects. It has a limited size, which may mean it’s also unable to fully replace traditional currencies. Moreover, a wide choice of virtual currencies could mean its popularity wanes over the coming years, as rival cryptocurrencies experience higher demand.

FTSE 100 return potential

In the short run, the FTSE 100’s recent challenges may continue. Although there have been signs of a recovery at times over recent weeks, its performance is highly dependent on coronavirus updates. Should growth in the number of cases fail to decline as various countries operate lockdowns, investor sentiment may deteriorate as prospects of a world economic recession become increasingly likely.

However, the FTSE 100’s past performance shows it has always recovered from its challenging periods to post new record highs. For example, it bounced back from the 1987 crash, just as it did following the tech bubble and then the financial crisis. During those bear markets, FTSE 100 shares traded at extremely low levels, in many cases. Investors who purchased them and held for the long term are more than likely to have generated high returns.

As such, following the same strategy with FTSE 100 shares today could be a shrewd move despite the short-term risks that are present. Through buying a diverse range of large-cap shares in a Stocks and Shares ISA, and holding them for the long run, you could improve your financial prospects. It may even bring your retirement date a big step closer.

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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.

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