The stock market volatility in 2022 has pushed many investors away from FTSE 100 shares and towards gold in an attempt to protect their wealth.
While the shiny metal is a proven hedge against inflation, this reallocation of capital has sent many terrific stocks in the wrong direction. And that’s created plenty of buying opportunities for investors’ portfolios. So much so that, in the long run, capitalising on these cheap valuations could be a path to an earlier retirement.
Why FTSE 100 shares?
There are undoubtedly bargain buying opportunities being created across the entire financial market. So why focus solely on the UK’s flagship index?
The constituents of the FTSE 100 are the largest enterprises listed on the London Stock Exchange by market capitalisation. While size does not guarantee positive returns, many large-cap companies have far greater access to financial resources. And during economic turmoil, that can prove quite advantageous, especially against smaller competitors trying to steal market share.
This is arguably one of the primary reasons why the lead index has quite an impressive track record of bouncing back. In fact, just in the last two months, FTSE 100 shares have collectively risen by 9.7%. That pushes its 12-month performance back into the green by around 2%, even before considering the additional gains from dividends.
By comparison, the FTSE 250 is still down more than 18% over the same time frame. Meanwhile, gold basically hasn’t moved.
Long-term potential vs risks
Looking at other stock market crashes and corrections throughout history, FTSE 100 shares have proven to be remarkably resilient in the long term. In fact, the majority not only tends to make a complete recovery but go on to reach new heights, either through share price appreciation or dividend generation.
What about gold? Since the start of the 2020 pandemic, gold prices have increased by an impressive 19%, while the FTSE 100 index has only delivered gains of 9.2%, including dividends. This stark contrast perfectly demonstrates why the yellow metal gains popularity during times of crisis. But what happens when things return to normal?
Zooming out to the last decade, gold has been a fairly abysmal investment, growing by just under 7.1%. Meanwhile, the FTSE 100 index is up by nearly 85% over the same period! That’s why stocks, in the long run, are a far better wealth-building investment than gold, in my mind. And are a far more suitable asset class for individuals trying to build a larger retirement nest egg.
Does that mean stocks are guaranteed to deliver amazing returns in 2023? No. As with any investment, there are always risks to consider. With uncertainty brewing of a looming British recession, it’s possible that the storm has not yet passed, even with inflation slowly dropping back down.
As such, there could still be considerable volatility ahead, even for FTSE 100 shares. But for patient investors, investing in terrific large-cap companies today may prove lucrative over the next decade.
