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Forget buy-to-let. I’d buy cheap FTSE 100 stocks now to profit from the market recovery

The FTSE 100 may have experienced a market rebound since its March lows, but there are still cheap shares on offer across many of its sectors. It may take time for them to fully recover from what could be a major global recession. But, over the long run, they could offer significant turnaround potential.

By contrast, high property prices mean buy-to-let investing may be relatively unappealing. As such, now could be the right time to focus your capital on FTSE 100 stocks, rather than buy-to-let, to generate high returns in the coming years.

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FTSE 100 valuations

The FTSE 100 continues to trade around 20% lower than its price level from the start of 2020. This suggests the index could offer good value for money. Certanly, many of its members currently trade at levels significantly lower than their historic averages.

Buying stocks at the present time could provide investors with significant capital growth potential over the long run. Fiscal and monetary policy stimulus may have helped to stabilise various industries through providing liquidity when required. It may also lead to rising asset prices over the coming years, as it fuels a global economic recovery. That helps the operating conditions for many large-cap shares to improve.

Of course, there are likely to be challenges for FTSE 100 stocks in the near term. But, in many cases, their current valuations factor in further disruption to their financial performances. As such, now could be the right time to buy a diverse range of them ahead of a stock market recovery.

Buy-to-let prospects

While the FTSE 100 appears to offer good value for money, house prices could experience a challenging period. Prior to coronavirus, property prices were close to a record high compared to average incomes. Now that unemployment has risen and consumer confidence has fallen, houses may become increasingly unaffordable. This may prompt a period of slower growth, or even decline, in the medium term.

Clearly, factors such as low interest rates and government support for the sector could help to maintain house price growth to some extent. But, with buy-to-let investments often requiring an investor to take on debt and it being difficult to diversify due to high purchase prices, the risk/reward opportunity within the sector seems to be relatively unfavourable.

A simple process

Furthermore, investing in FTSE 100 shares ahead of a market recovery is relatively simple. Opening a Stocks and Shares ISA can be completed online in a matter of minutes, offering tax-efficiency for a modest annual fee. And, due to low dealing costs, diversifying across FTSE 100 sectors is accessible to most investors.

With the FTSE 100 having a solid track record of recovery, now could be the right time to buy undervalued companies. They offer recovery potential that could boost your financial position in the long run.

A Top Share with Enormous Growth Potential

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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.