The stock market crash has driven FTSE 100 stock valuations into bargain territory. Although share prices have recovered since their March lows, there are still plenty of buying opportunities out there. If you’re looking to build a million-pound portfolio, don’t waste this moment.
I reckon investing in cheap FTSE 100 shares is a better way to build your long-term wealth than trying to play the gold price. Demand for the precious metal surged in the early stages of the crash, but may now have topped out.
The big problem with gold is that it doesn’t pay any interest. Instead, you rely on investor sentiment to drive the price ever higher.
Buy gold not shares in the stock market crash?
Getting zero interest is less of a problem these days, as many companies cut their dividends, and cash and bonds pay so little. However, plenty of FTSE 100 companies can still give you dividend yields as high as 9%.
Next year, the FTSE 100 is still forecast to yield around 3%. That’s lower than last year’s 4.5%, but remains a decent level of income. It should rise over time as the economy emerges from the pandemic and companies restore payouts. When that happens, gold will still be paying zero income.
I think the gold price looks vulnerable at today’s high of around $1,700 an ounce. If investor sentiment picks up along with the economy, then it could soon fall back. Also, I don’t like buying assets on the back of a strong bull run. The gold price is up 34% over the last year. Given the pace of its ascent, it could fall quickly as well.
A good time to buy FTSE 100 shares
FTSE 100 stocks have picked up in recent weeks, but are still 20% lower than before the crash. This means some of the current uncertainty is priced into share values. Of course, markets could crash again. We could still face a second wave of the pandemic.
You shouldn’t fret too much about short-term market movements. When investing in stocks and shares, what matters is the long-term trend. If you’re looking to build a million-pound portfolio, that’ll take 20, 30 years, or more. Over such a lengthy period, short-term volatility such as today’s doesn’t really matter.
In fact, you can turn it to your advantage by taking the opportunity to buy cheap FTSE 100 shares at a reduced entry price. Then aim to buy and hold them for the long-term, while reinvesting dividends to turbo-charge your growth.
You could hold 5%, or 10%, of your portfolio in gold, to offset stock market risk. However, I wouldn’t recommend buying at today’s price. Maybe when it’s cheaper.
Right now, FTSE 100 stocks look more tempting to me. The recovery should ultimately drive share prices higher, plus you’ll get a growing income stream over time. You’ll never get that with gold.
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Harvey Jones 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.