Following the recent FTSE 100 crash, many investors may have turned to assets such as gold and Bitcoin that appear to offer protection in times of uncertainty. However, in the March stock market crash, the value of these assets declined just as quickly as FTSE 100 stocks.
There are some other drawbacks to holding these assets instead of stocks.
For example, the prices of both gold and Bitcoin are determined by supply and demand. That means they are only worth as much as other investors are willing to pay.
On the other hand, the value of FTSE 100 stocks is determined by the underlying cash flows of these businesses.
As such, FTSE 100 stocks are likely to produce much higher returns than Bitcoin and gold over the long run.
That’s why I think FTSE 100 stocks could be a better investment for investors who want to get rich. But some stocks may offer better total returns than others.
Time to buy quality FTSE 100 stocks
Right now, the global economy is facing a large number of headwinds that could constrain economic growth for the foreseeable future.
Companies and countries around the world have taken on record amounts of debt to try to cope with the coronavirus crisis. As borrowers try to repay creditors in the future, it could have a significant impact on spending.
At the same time, a second wave of coronavirus crisis may destabilise the global economic recovery. And consumers may not rush back out to spend as fast as many economists are predicting.
Considering all of the above, investors need to be cautious when picking FTSE 100 stocks to buy today. High-quality FTSE 100 shares with large profit margins and strong balance sheets may be the best investments.
Moreover, companies that also have a definite competitive advantage may be able to weather the storm better than others. The competitive advantages can be anything from lower costs compared to the rest of the industry to a strong brand that consumers know and trust.
Furthermore, high-quality FTSE 100 dividend stocks could become increasingly popular over the coming years.
Policymakers around the world have slashed interest rates to record lows to help the economy cope with the coronavirus crisis. This could make the returns on dividend stocks seem far more appealing on a relative basis than other income-producing assets, such as cash and bonds.
Therefore, the demand for FTSE 100 dividend stocks may increase dramatically over the coming years as investors seek out income. This would have a positive impact on these companies’ share prices.
Invest in growth
Bitcoin and gold might look like attractive investments in the current uncertain environment.
However, the performance of FTSE 100 stocks over the long term has significantly outperformed these assets.
So, while there might be further uncertainty ahead for these blue-chip equities, investors who are serious about building a large financial nest egg over the long term should consider buying high-quality FTSE 100 stocks at discount valuations today.
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Rupert Hargreaves 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.