Some investors will be wary of the FTSE 100 right now. The coronavirus crash and stimulus-driven rally has shocked many.
I can see why some might rush to the safety cash. Others will be considering buy-to-let, hoping to pick up a bargain property. Yet, for me, the FTSE 100 is a better option. Today’s low valuations make this an excellent time to buy shares with the aim of holding them for the long term.
At the Motley Fool, we like to invest in FTSE 100 shares at times like these. Stock markets have crashed before, repeatedly. History also shows they always recover, given time. Investors who buy in a bear market reap handsome rewards when equities bounce back.
A great time to buy FTSE 100 shares
It takes courage to invest now. The economy is heading for a deep recession. There’s the danger of a second wave of infections. Share prices have recovered since the lows of March, and the rally may have run its course, for now.
Given today’s uncertainties, why would you buy FTSE 100 shares today? Because, in the longer run, equities outperform every other asset class. They’re risky in the short term, but far more rewarding in the longer run.
And that’s exactly how you should invest – for the long term. Buy a spread of FTSE 100 shares whenever you have the money, and leave them to grow. If you can buy at discounted valuations straight after a crash, all the better.
History also shows that shares smash cash over the longer run. This looks set to continue now that base rates have been slashed to 0.1%, and could even turn negative. You need some money on easy access to cover, say, six months of salary in case of emergencies. Thereafter, you should put money into shares for superior returns.
I’d say no to cash and buy-to-let
The buy-to-let bubble has been pricked by the Treasury’s tax attack. Investors have to pay a 3% stamp duty surcharge on purchases. Higher-rate taxpayers can only get basic-rate tax relief on their mortgage interest. Finding a property, paying estate agency and surveying fees, doing it up, sourcing tenants and replacing them, is a lot of bother.
I wouldn’t fancy chasing tenants who cannot afford to pay their rent due to the Covid-19 crash. Would you? I would much rather invest in FTSE 100 shares via a Stocks and Shares ISA. You can buy and sell in seconds, and your returns are tax-free.
That’s how I would aim to make a million to secure a comfortable retirement. It can be done, if you give it time. Say you invested £500 a month and markets grew at 8% a year. After 30 years, you’d have £734,000. After 35 years, you’d have £1.1m.
You can still make big money from investing in FTSE 100 shares over shorter periods. For me, cash and buy-to-let don’t offer the same opportunity.
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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.