The recent stock market crash may mean that many investors consider opportunities outside of the FTSE 100. That’s understandable, since the index has experienced one of its fastest declines since inception.
However, other assets such as Cash ISAs, buy-to-let properties and Bitcoin face their own challenges. On a risk/reward basis, therefore, FTSE 100 stocks could offer the most favourable long-term prospects for investors – even after a hugely challenging few months.
Cash ISAs versus FTSE 100 stocks
Cash ISAs may offer no risk of loss as long as you have no more than £85k invested at a single banking group, but their returns could prove to be hugely disappointing. Interest rates are already at historic lows, but negative rates are currently not being ruled out by the Bank of England. This could mean that holders of Cash ISAs experience further declines in their returns so that they are below inflation over the medium term.
A negative after-inflation return means a loss of spending power. Over time, this can make it more difficult to improve your financial prospects versus investing in the FTSE 100. As such, for long-term investors, Cash ISAs may not prove to be a productive use of capital.
Even though buy-to-let property could experience capital growth that rivals that of the FTSE 100 over the long run, it faces risks in the short term. Notably, void periods may be longer than usual due to higher unemployment and weak GDP growth. There may also be a lack of rental growth in the coming years that limits your total returns.
However, possibly the biggest risk facing buy-to-let investors is a lack of affordability across the sector. This could not only limit capital return prospects, but may mean that buying a property requires a substantial initial investment that many people simply do not have. Therefore, building a diverse property portfolio could be a difficult process that leaves many investors with a high degree of risk.
The Bitcoin price has surged higher over recent months, and has outperformed the FTSE 100. However, this is largely due to investor sentiment, since the virtual currency has no fundamentals. Therefore, investors have no way of knowing if it offers good value for money.
Looking ahead, Bitcoin could experience a slower pace of growth. Competition from other virtual currencies and concerns about its regulatory risks could hold back investor sentiment. As such, from a risk/reward perspective, it may not be relatively attractive.
FTSE 100 opportunities
The FTSE 100’s market crash could mean that there are buying opportunities available across the index. Historically, it has recovered strongly following its downturns, and the same outcome may be ahead this time around.
As such, now could be the right time to stick with FTSE 100 stocks through buying a diverse range of them. They could outperform other popular assets and boost your financial prospects over the long term.
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.