The recent FTSE 100 stock market crash may have pushed some investors to sell stocks and buy safer assets such as gold. Indeed, gold has been a better investment than the FTSE 100 this year.
The price of the yellow metal has jumped around 13% year-to-date. That’s compared to the index’s decline of 20%.
However, while the outlook for stocks might be uncertain in the short term, the FTSE 100 may produce much higher returns than gold over the long run.
FTSE 100 performance
Over the past three-and-a-half decades, the FTSE 100 has returned around 8% per annum. That’s more than double the return of gold during this time frame.
While there’s no guarantee the blue-chip index will achieve this performance going forward, buying stocks has always been an excellent means of growing your nest egg.
That being said, the FTSE 100 tends to be more volatile than gold. Since its inception, the index has fallen by more than 50% on more than two occasions.
Still, buying stocks at low levels has been a great way of improving long-term returns in the past. There’s a good chance investors could see the same situation this time around. The FTSE 100 has always recovered from heavy losses in the past and gone on to produce new highs. Holding on through the tough times usually pays off in the long term.
Unlike gold, the FTSE 100 also offers diversification. The index is made up of 100 different companies that operate in various sectors and countries. More than 70% of the index’s profits come from outside the UK.
Therefore, the index could produce good returns in all economic environments. Gold only tends to do well in times of uncertainty. The price of the yellow metal had declined to a multi-year low before the recent sell-off.
What’s more, the FTSE 100 currently supports a dividend yield of 4%. Unlike gold, the index pays investors an income. Gold, on the other hand, usually costs money to buy and hold. As such, for income seekers, the blue-chip index is by far the better option.
Further, as mentioned above, the FTSE 100 is highly diversified. This means the index’s dividend stream comes from several different sectors and countries. That also means it is less likely to be disrupted in the long term.
All in all, while gold might look like the better asset after its recent performance, over the long term, the FTSE 100 may prove to be the better buy. The index offers investors exposure to some of the world’s largest and fastest-growing companies. It also supports a healthy dividend yield of 4% and has a proven track record of creating value for investors.
And the best way to buy the FTSE 100 may be to buy a low-cost index tracker fund. Index tracker funds allow you to buy the whole index at a click of a button, so you don’t have to worry about picking individual stocks.
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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.