Buy-to-let properties, gold and cash savings remain hugely popular among investors, but I’m not sure they merit their current popularity.
While all three have delivered strong returns at different stages of the investment cycle, I believe the future could be tougher.
If I had £20k to invest, or any other sum for that matter, my first port of call would be the stock market, by investing tax-free in a Stocks and Shares ISA. Over the longer run, I believe shares should deliver higher returns than most other asset classes.
Tough times ahead
It’s a long time since people hailed cash as king. These days, the average Cash ISA pays around 0.5%, while even the best-buy offerings pay little more than 1% with instant access. With Bank of England governor Mark Carney recently suggesting it could cut today’s base rate from 0.75%, there is no sign of any improvement, and money held in cash will struggle to keep up with inflation.
Gold has surged over the last year, boosted by economic and political uncertainty, and low global interest rates. However, after rising more than 20% in the last year to today’s $1,550 an ounce, I’m not sure it has much further to go. If investor sentiment picks up, the gold price could retreat.
Similarly, buy-to-let’s glory days may be over. As house prices slow and yields fall, the capital growth and income you are likely to earn is falling. Buy-to-let is now heavily taxed, so making your fortune on the property market is more challenging than before.
Here’s what I’d do
Given the headwinds facing cash, buy-to-let property and gold, I would prefer to invest in a spread of companies through a Stocks and Shares ISA. Blue-chip stocks on the FTSE 100 currently yield 4.36% a year, far more than any Cash ISA, while the FTSE 250 index of medium-sized companies may offer faster growth prospects. Shares are riskier than cash in the short term, but much more rewarding over a longer period.
The IMF predicts the global economy will grow by 3.4% in 2020, higher than last year’s estimated 3%, and this should support markets around the world. Investing in businesses that are well placed to capitalise on this, both in the UK and emerging markets, looks sensible to me.
Building a balanced spread of high-quality growth and income stocks could help you generate higher returns than most other asset classes. Better still, by investing in a Stocks and Shares ISA, you do not have to pay any tax on your income and growth, for life. You could invest in top FTSE 100 stocks to give yourself a passive income, where the money rolls in without you actually doing anything.
2019 was a terrific year and some reckon that investing is a no-brainer in 2020. This may now be the time to shun property, gold and cash and increase your exposure to top companies using your Stocks and Shares ISA. Whether you invest £1k, £20k or £100k, shares look like the best way to build your long-term wealth today.
