The volatile recent past of the FTSE 100 may persuade some investors that Cash ISAs and buy-to-let property are more attractive assets. After all, the FTSE 100’s market crash and subsequent rebound have caused a tremendous amount of uncertainty for all investors in shares.
However, in the long run, the stock market could offer superior returns to Cash ISAs and buy-to-let. Therefore, while many large-cap stocks trade on low valuations, there may be a buying opportunity for long-term investors who are seeking to bring their retirement date a step closer.
The main advantage of Cash ISAs versus FTSE 100 shares is their lower risk. Provided you have less than £85,000 held at any banking group, your deposit is fully covered under the financial services compensation scheme. By contrast, there is a very real risk of loss from buying shares, since the future prospects for the world economy are highly uncertain.
However, investors who are expecting to generate inflation-beating returns from Cash ISAs may be disappointed. Low interest rates could remain in place for a prolonged period of time, since the UK economy may require ongoing monetary policy stimulus to overcome what has been a major shock. As such, amounts invested in Cash ISAs may produce negative after-inflation returns, thereby failing to bring your retirement date any closer over the long run.
The economic uncertainty caused by coronavirus may not yet have been evident in house prices. Low transaction volumes mean that this situation may persist in the short run, although it seems likely that house prices will experience a difficult period should the UK economy deliver negative growth.
Even though interest rates may now be at historic lows, the outlook for buy-to-let properties may be relatively challenging. High house prices relative to average incomes and changing tax rules mean that the returns available to landlords on a net basis may be somewhat disappointing. As such, investing in buy-to-let property may not produce the high returns that have been delivered over recent years.
FTSE 100 appeal
The FTSE 100 may have experienced a volatile period in recent months, but its long-term track record continues to be strong. It has recorded an annualised total return in excess of 8% since its inception in 1984, and investors with a long timeframe may be able to generate similar returns in the coming years.
In fact, history shows that buying shares following a market crash can lead to market-beating returns in the long run. With the FTSE 100 currently offering low valuations across a variety of sectors, now may be the right time to buy a selection of companies. This strategy carries the real risk of paper losses in the short run, but could help you to retire early as the index gradually recovers over the long term.
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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.