Buy-to-let properties, gold and cash savings are likely to be popular destinations for investor capital in 2020. All three assets have delivered high returns in the past, but their appeal could begin to decline over the coming months and years.
A better place to invest £20k, or any other amount, could be the stock market through a Stocks and Shares ISA. It may deliver higher long-term returns which improve your financial prospects.
The outlook for cash savings continues to be relatively downbeat. Interest rates are currently close to their historic lows, and are not expected to rise at a fast pace. Ongoing political risk and low inflation may mean that the return on Cash ISAs and other savings products continues to be below inflation.
Gold’s surge in 2019 may not be repeated in the long run. It benefitted from low interest rates in the US, as well as uncertainty in the world economy’s outlook. With it now trading at a relatively high price and there being the potential for growth in the stock market as investor sentiment improves, now may not be the right time to buy gold.
Likewise, buy-to-let property could face a challenging outlook. Yields across the UK have fallen as higher house prices have squeezed the income returns available to investors. Similarly, tax changes could mean that making a million from property is more challenging in the coming years than it was in the past.
Due in part to the challenges facing gold, cash and buy-to-let property, now may be the right time to invest in a range of companies through a Stocks and Shares ISA. The FTSE 100 currently has a 4%+ dividend yield, while the FTSE 250’s UK focus means that many of its members currently trade on low valuations. This could mean that they offer favourable risk/reward ratios that increase your chances of generating high returns.
With the world economy’s growth prospects being strong, the international exposure offered by the FTSE 350 may mean that its members are able to deliver improving levels of profitability. In fact, the world economy is expected to grow at a faster pace in 2020 than it did in 2019. Therefore, identifying businesses that can capitalise on it, perhaps through exposure to emerging economies, could be a sound move.
When they trade on low valuations, this could offer investors the chance to buy high-quality growth stocks at a reasonable price, thereby improving their chances of generating high returns relative to other asset classes. And with Stocks and Shares ISAs offering a high degree of tax efficiency, the net returns available to investors in the stock market could prove to be attractive in 2020 and beyond. Therefore, now could be the right time to avoid property, gold and cash to increase your exposure to the FTSE 350.
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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.
Motley Fool UK 2020