A plan to invest £10k, or any other amount, in shares could allow an investor to benefit from a likely recovery in the stock market following its 2020 crash. After all, indexes such as the FTSE 100 and FTSE 250 have always bounced back from their downturns and bear markets to reach new record highs.
Since both are trading some way off their 2020 starting prices, there seems to be scope for further capital growth via a stock market rally.
By contrast, assessing whether the Bitcoin price offers scope for further capital growth is much more difficult. As such, a strategy to invest money in shares could be more attractive from a risk/reward standpoint than buying Bitcoin.
Invest £10k in shares: the potential returns
Clearly, forecasting the returns on a £10k investment in shares is difficult at the present time. Despite this, the past performance of the FTSE 100 and FTSE 250 suggests that a high single-digit annual total return is a realistic aim for any investor over the long run.
However, it may be possible for an investor to obtain a more attractive rate of return than the wider market through using the stock market’s cycles to their advantage. For example, many shares trade at lower prices now than they did at the start of the year. This is because they’ve not yet recovered from the stock market crash.
Over time, investor sentiment is likely to improve, while the operating environments for many companies are likely to strengthen. This could mean they offer greater capital return prospects than the wider stock market.
As such, investing £10k in them today may produce above-average returns over the long run. Even if an investor is only able to match the stock market’s rate of growth, a £10k investment could be worth almost £70k within 25 years, assuming an 8% annual return.
Achieving financial freedom with shares instead of Bitcoin
Of course, 8%+ returns on a £10k investment may sound unappealing to some investors after the Bitcoin price has surged higher in recent months. However, the virtual currency carries greater risks than UK shares. For example, it lacks fundamentals and has regulatory threats that could derail its growth.
Furthermore, it’s possible to invest money in a wide range of shares to reduce overall risks. A diverse portfolio relies to a lesser extent on a small number of companies for its returns. Therefore, it may offer greater stability and a more dependable return profile over the long run.
As such, investing £10k in a diverse portfolio of attractive shares while they trade at low prices could be a sound means of achieving financial freedom in the long run. Now could be an especially worthwhile time to invest. That’s because many FTSE 100 and FTSE 250 stocks have yet to fully recover after the 2020 stock market crash.
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.