Financial markets remain turbulent, and it’d be foolhardy to expect them to remain anything but jumpy for the rest of 2020. Does that mean that FTSE 100 investors should retreat into the woods with their cash? Not for a second.
I myself have built a portfolio of a dozen equities (including a variety of Footsie-listed shares) in a Stocks and Shares ISA. I don’t plan to stop investing in UK companies even in spite of the pandemic, either. Failing to max out the £20,000 annual allowance, thereby keeping your hard-won returns away from the mitts of the taxman, is akin to looking a gift horse in the mouth. If you have the capital to invest, well, why not continue to invest it?
Cash crushes returns
It’s been clear for months that the coronavirus crisis will have significant ramifications on the global economy for much of this new decade. But this is no reason to stop buying into FTSE 100 stocks. Remember that the key to successful investing it to buy with the aim of holding your equities for anything from 10 years to indefinitely.
Studies show that investors with a long-term strategy like this can expect to make average annual returns of between 8% and 10% per annum. This is even when accounting for economic downturns like this one. Sure, you can choose to lock your money up in a cash account where your deposits aren’t affected by choppy movements on financial markets. However, the paltry returns there almost aren’t worth bothering with.
According to comparethemarket.com, the best-paying instant-access Cash ISAs are operated by Al Rayan Bank and Ecology Building Society. The rates they have to offer sit at a paltry 1.1%. Is this likely to make the sort of returns that’ll help you get rich and enjoy a comfortable retirement? Unlikely, in my opinion.
FTSE 100 royalty
It’s important to remember that, even for those investors with a low tolerance towards risk, that there remains a wealth of brilliant FTSE 100 shares to choose from today.
Take the utilities providers, for example. A cooling economy will naturally reduce overall energy consumption and thus revenues at National Grid and SSE. But largely speaking their profits should remain immune to broader conditions in the near term. And over a longer time horizon they should grow thanks to their ongoing commitment to expansion. These shares offer dividend yields of 5.5% and 6% respectively and this makes them worthy of serious attention, in my book.
Food and beverages producers are also reliable stocks in times of recession. This is why I am confident to continue owing FTSE 100 royalty Unilever and Diageo in my own personal portfolio. Their jam-packed stable of popular labels offering another layer of security, too.
One safe-haven share from the Footsie I have my eye on today is Polymetal International. The gold producer boasts a rock-bottom price-to-earnings ratio of 10 times for 2020 and a monster 5.5% dividend yield. This is possibly the ultimate blue-chip share for investors worried about a prolonged economic downturn, given the bright outlook for gold prices.
The difficult economic environment means that investors really do need to do their homework before taking the plunge. It doesn’t mean that they need to pull the plug on their investment decisions, though. With the right strategy it’ll still possible to make very decent returns.
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Royston Wild owns shares of Diageo and Unilever. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo. 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.