Buying bargain FTSE 100 shares has historically been a sound means of generating high returns. The index’s cyclicality and long-term recovery potential mean that a strategy of buying undervalued businesses and holding them has paid off for many investors.
Of course, buy-to-let properties have also generated high returns over recent decades for many landlords. However, with a diverse international focus, low valuations and growth potential, now could be a better time to buy FTSE 100 shares for the long term. Doing so could increase your chances of making a million.
FTSE 100’s international focus
Around two-thirds of the FTSE 100’s earnings are generated from outside of the UK. This means that investing in a range of large-cap shares provides a huge amount of geographic diversity. This could become increasingly worthwhile, since it is unclear which countries will emerge from coronavirus in a strong position. In other words, some countries may experience second waves of the virus, while others may be able to return to normality much quicker.
Therefore, having exposure to different economies could be highly beneficial to your returns in the coming years. It may not only reduce risk, but could improve your chances of making a million.
Valuations
The FTSE 100 may have rebounded sharply from its recent market crash, but investor sentiment is weaker than it was at the start of the year. As such, there are a number of large-cap shares that appear to trade on low valuations compared to their historic levels.
Certainly, some of them may struggle to overcome the risks they face in the short run. However in many cases, weak investor sentiment towards the wider stock market has produced attractive prices for high-quality business. Buying them now could lead to a high return in the long run – especially since the FTSE 100 has a strong track record of recovering from its downturns to produce new record highs.
Buy-to-let challenges
The FTSE 100 could outperform buy-to-let properties over the long run. House prices in the UK are relatively high versus incomes, and may struggle to make gains due to weak consumer confidence. And with the UK being among those countries hardest-hit by coronavirus, having exposure to other economies could be beneficial over the coming years.
Furthermore, diversifying across buy-to-let properties is incredibly expensive. Even if you borrow a majority of the purchase price, the high cost of properties in the UK means that most investors will have only a small portfolio. This can cause significant risks should there be extended void periods, for example.
As such, now could be the right time to buy a selection of FTSE 100 shares and hold them for the long run. They could deliver surprisingly high returns that may even lead to a seven-figure portfolio in the coming years.
