The FTSE 100 has delivered an exceptional rebound since its market crash. It has risen by over 25% in a matter of weeks, which suggests investor sentiment has started to improve.
Despite this, other assets, such as Bitcoin, have produced even more spectacular gains. In fact, the virtual currency is currently trading around 100% higher than its lowest level in March.
However, with the FTSE 100 having a track record of delivering high returns on a consistent basis, and many of its members offering wide margins of safety, it could offer a more attractive means of improving your retirement prospects than Bitcoin in the coming years.
FTSE 100 returns
The FTSE 100’s track record is characterised by its cyclicality. It constantly switches from relatively long periods of growth to shorter periods of decline. Even so, it has been able to produce an annualised total return of over 8% since it was created in January 1984. Therefore, investors who hold a diverse range of stocks for the long term can expect to generate impressive returns. And these can significantly increase their chances of retiring early.
For example, investing £200 per month over a 45-year working life at an annual return of 8% would produce a nest egg of around £925,000. From that, the FTSE 100 could deliver an attractive passive income that enables you to retire in comfort.
Of course, investing while the FTSE 100 is trading at a relatively low level could produce even higher returns in the coming years. Investors who have been able to buy stocks when the outlook for the index is unclear have generally benefitted from its recoveries.
With the economic outlook difficult to accurately predict at present, there may be opportunities for long-term investors to purchase high-quality stocks while they offer wide margins of safety. This could enable you to obtain a higher return than the index’s past annualised growth rate. This may lead to a larger nest egg and an earlier retirement date.
Furthermore, when purchased through a Stocks and Shares ISA, your retirement nest egg could benefit from tax efficiency that increases its overall size.
Bitcoin may continue its recent trend to produce a higher growth rate than the FTSE 100 in the short run. But its lack of fundamentals and relatively short track record mean its performance over a multi-decade time period is highly uncertain. Moreover, its limited size and questionable potential to eventually replace traditional currencies may mean that demand for the virtual currency comes under pressure.
As such, while FTSE 100 shares are cheap, it could be worth building a portfolio through buying a diverse range of high-quality businesses. Over the long run, their return prospects could boost your chances of obtaining a sufficiently large nest egg to retire early.
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.