2020 has been a tough year for UK shares, but they remain my go-to investment. Rival asset classes such as cash, gold, and Bitcoin simply do not convince me. While they may have their moments in the sun, I’m not banking on them to build my long-term wealth.
I am increasingly optimistic about the outlook for UK shares. As we fight our way out of the pandemic, I think they could spearhead the recovery. Especially if we get Brexit sorted as well. International investors have been snubbing the FTSE 100 since the EU referendum in 2016, but that could swiftly reverse.
As for cash, what’s to say? Everybody needs six months of emergency spending money on easy access, in case of sickness or redundancy. However, I wouldn’t leave too much in cash, as its real value will erode due to inflation. Interest rates aren’t going to recover for years.
I’m buying UK shares first
Crypto-currency Bitcoin has had a thrilling year. Despite dipping to $16,750 a coin at time of writing, it is up 136% year-to-date. At some point, it will surely top its 20 December 2017 high of $20,000. Yet I would still prefer to buy UK shares today. Why?
Today’s entry level is simply too high, leaving crypto investors vulnerable to a pull back. While it is hard to argue against having some exposure to Bitcoin, the bulk of my long-term wealth will go into UK shares. They offer both capital growth and dividend income, and their value will compound over time.
Gold falls down for me because it does not pay any income. Like Bitcoin, investors are banking on price movements. Right now, they are going in the wrong direction. Gold has fallen around $300 since its August high of $2,084 an ounce.
Again, the precious metal has a role to play as a portfolio diversifier. If the price falls further, I might buy a gold ETF (although on past form, I probably won’t). If the global economy bounces back from the pandemic next year, gold could prove a poor investment. I don’t think UK shares will.
I’d buy the FTSE 100 before the recovery
I’m not putting all my retirement pot in stocks, just around 80% of it. Share prices are underpinned by massive monetary and fiscal stimulus, which gives investors a safety net in these difficult times. The main reason I like UK shares is for their generous dividends, despite this year’s cuts. If you re-invest them for growth, that should turbocharge your returns.
The next few years could be exciting, as the UK plays catch up with global markets. The FTSE 100 could even hit 10,000. I’m keen to take a position today, ahead of the long-term recovery. So no cash for me, no more Bitcoin aside from the single coin I hold, and no gold. I’m betting my future on UK shares to get richer and with luck, retire early.
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Harvey Jones 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.