Making a million from the FTSE 100 may seem unlikely after the index’s recent market crash. It faces an uncertain near-term outlook that could realistically cause its price level to decline.
As such, some investors may feel that buy-to-let properties offer less risk and a greater chance of generating high returns in the long run.
However, the FTSE 100 has a strong track record of recovery from its most challenging periods. Investors who can buy a diverse range of stocks today, ahead of an improving period for the index over the long run, that may generate high returns to improve their chances of making a million.
Long-term recovery potential
The chances of the FTSE 100 returning to its record high may seem somewhat unlikely at present. After all, the UK economy is yet to fully emerge from lockdown and is likely to experience a recession over the coming months. This could cause business, consumer and investor confidence to come under pressure. In turn, that may mean the valuations of a range of large-cap shares may decline.
However, the FTSE 100 has experienced similarly challenging economic periods on a number of occasions during its lifetime. At times, the index has lost over half of its value in a matter of months as weak economic data has prompted increasing risk aversion among investors.
The index has always not only recovered from such periods, but has then gone on to post new record highs after every one of its bear markets. Investors who’ve taken a long-term view of the index and its prospects through buying stocks when they trade at bargain prices have generally been highly rewarded.
By contrast, the returns from buy-to-let properties could be less favourable than those offered by FTSE 100 shares. House prices may decline in the near term so that the sector offers better value for money. But factors such as changing tax rules could mean net returns from buy-to-let property are relatively unattractive.
For example, many landlords will no longer be able to offset mortgage interest payments against rental income on a property. This could reduce their net returns at a time when void periods may be longer and rental growth lower as a result of a period of slower growth for the economy.
Buying FTSE 100 stocks today
Investors buying FTSE 100 stocks today could realistically outperform the index over the long run. Its annualised total return of over 8% since inception may be relatively impressive compared to other mainstream assets. But buying large-cap shares when they trade on low valuations could yield an even higher return for long-term investors. They may be able to take advantage of the recent market crash and benefit from a likely recovery.
While this process is unlikely to take place at a fast pace, it could improve your portfolio returns in the coming years. And increase your chances of making a million.
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.