While the FTSE 100 has experienced a market crash over the last couple of months, the gold price has surged close to a record high. As such, many investors may feel the precious metal offers a superior means of generating high returns over the long run. Especially since the world economy faces an uncertain future.
However, buying bargain FTSE 100 shares now could be a better means of improving your retirement prospects. The index’s track record of recovery, and the likelihood of improving investor sentiment, mean purchasing large-cap shares in an ISA now may boost your long-term financial outlook.
Gold’s appeal has increased over recent months, in part because of weak investor sentiment. The precious metal has a long history of being relatively popular during periods of economic uncertainty. Its status as a store of value has resonated with investors.
Furthermore, falling US interest rates have reduced the appeal of interest-producing assets relative to gold. Inflation fears caused by the Federal Reserve’s ‘unlimited quantitative easing’ programme may also mean gold continues to be popular with investors in the coming months.
FTSE 100 appeal
However, investors with a long time horizon may be better off buying FTSE 100 shares instead of purchasing gold.
The index has a solid track record of recovering from every one of its bear markets. In fact, it’s been able to post new record highs after every one of its previous downturns. Sometimes, this takes a matter of months. In other cases, it can take years. But if you’ve many years left until you plan to retire, the stock market could offer higher returns than other mainstream assets – including gold.
A rise in the FTSE 100’s price level could mean investor sentiment improves. This may cause investors to become less risk averse. That may further reduce demand for perceived safer assets such as gold. This could lead to gold’s price level experiencing relative underperformance of riskier assets, such as equities, over the long term.
Building a portfolio
Building a portfolio of FTSE 100 shares is a relatively straightforward and inexpensive process. Furthermore, buying a range of companies in a Stocks and Shares ISA could be a worthwhile move, since it’s a tax-efficient means of planning for your retirement.
Now could be the right time to start this process, since valuations across the FTSE 100 are relatively low. In some sectors, the last time similar price levels were on offer was during the previous bear market in 2008/09.
As such, now could be the right time to buy a range of large-cap shares and hold them for the long run. They may fail to outperform gold over the short run, but are more likely to improve your financial situation to enable you to retire early in the coming years.
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.