The prospects for buy-to-let may appear to be better than UK shares, at first glance. The government’s stamp duty holiday (and other support schemes) may help provide growth for house prices in the short run. That is an appealing idea while a second market crash looms over the FTSE 100 and FTSE 250.
However, the bargain status of many stocks, the ability to reduce your tax bill, and the prospect of being able to invest more modest amounts than through buy-to-let, could mean now’s the right time to invest £10k, or any other amount, in the stock market. Over time, doing so could help you to retire early.
Cheap UK shares
After the recent market crash, there are many cheap UK shares on offer across a wide variety of sectors. Buying them today could allow you to obtain an even greater rate of return than the stock market’s long-term average, since you may benefit to a great extent from its recovery potential.
For example, investors who purchased FTSE 100 shares following the index’s long history of bear markets benefitted from the stock market’s low prices. After every market crash, it’s always gone on to record new all-time highs. That prospect may seem unlikely at present, due to risks such as a continued rise in coronavirus cases. But, in the coming years, fiscal and monetary policy stimulus have the potential to significantly raise the valuations of high-quality businesses.
By contrast, house prices lack margins of safety compared to UK shares. Affordability concerns may be eased by government support schemes, such as the stamp duty holiday. However, the fundamentals of the housing market appear to be relatively weak. Indeed, they’re not currently fully reflected in house prices. Therefore, returns for buy-to-let investors may be somewhat disappointing compared to those of FTSE 100 and FTSE 250 shares.
Accessibility
Investing in UK shares is a more accessible strategy than undertaking a buy-to-let investment. An investor can buy relatively small amounts of stocks to benefit from the stock market’s growth prospects. However, a large deposit is required to buy just one property. This may mean that many landlords’ portfolios lack diversification.
Furthermore, with products such as a Stocks and Shares ISA being simple and cheap to open, shares offer greater tax efficiency than buy-to-let investments. Over time, this could mean that their net returns are significantly higher than those on offer from within the property sector. Especially as many government schemes are temporary in nature.
UK shares have greater tax efficiency, accessibility, and value for money than buy-to-let investments. They could prove to be a better means of building a retirement nest egg. And they may help to bring your retirement date a step closer as the stock market gradually recovers from its recent market crash.
