Bitcoin and gold performances have been far superior to the FTSE 100 in recent months. Gold, for example, has surged close to an all-time high as investors have flocked to defensive assets. Bitcoin, meanwhile, has almost doubled from its March lows as investor sentiment has improved dramatically.
However, over the long run, the FTSE 100 could offer a more favourable risk/reward opportunity than either gold or Bitcoin. It offers a strong track record of recovery, while its low valuation could equate to high capital returns that help you to retire early.
Attractive FTSE 100 prices
The FTSE 100 is currently trading around 20% down on the level at which it started 2020. This suggests it offers good value for money, even after its rebound over recent weeks.
Many of the index’s members trade on valuations significantly below their historic averages. Certainly, there’s a clear reason why. The global economy is likely to experience a recession in the current year. And that could have a significant negative impact on the financial prospects for many FTSE 100 companies. As such, investors are only willing to pay lower prices for companies with challenging prospects.
However, over the long run, undervalued stocks could offer recovery potential. Buying them while they trade at a low price provides greater scope for capital returns. And, since many FTSE 100 companies are likely to survive economic uncertainty due to their strong balance sheets, their risk/reward opportunities are highly appealing.
Furthermore, the FTSE 100 has a solid track record of recovering from its previous downturns. Even though it’s experienced many major recessions in the past, it’s risen six-fold since its inception in 1984.
An uncertain future
The prospects for gold may seem to be bright at present. An uncertain economic outlook may mean demand for the precious metal is buoyant, since it’s historically offered defensive appeal.
However, investor sentiment towards riskier assets is likely to improve over the coming years. With the gold price relatively high, it may have limited capital growth potential. Moreover, the stimulus packages being introduced by policymakers across the world may help the economy to recover at a faster pace than many investors are pricing in. This could limit the appeal of gold over the coming years if GDP growth is stronger than current forecasts.
Bitcoin’s popularity as an alternative to other assets such as the FTSE 100 could persist over the near term. Its recent price rise may encourage further buying among investors. However, its limited size, competition from rival virtual currencies and regulatory challenges may mean it fails to replace traditional currencies in the long run. As such, demand for the cryptocurrency may fail to increase at a rapid rate, which could lead to a more modest price performance.
FTSE 100 retirement prospects
Buying a diverse range of FTSE 100 shares in an ISA may not deliver high returns in the short run. But, over the long run, the index’s low valuation and its track record of recovery mean it’s likely to offer a superior risk/reward opportunity than gold or Bitcoin that helps you to retire early.
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.