Historically, buy-to-let investments have proven to be highly successful in generating strong returns. Rising house prices, low interest rates and increasing rental payments have meant that many investors have generated £1m+ portfolios that provide them with a generous passive income in retirement.
However, potentially unaffordable house prices in many parts of the UK and ongoing political risks mean that buy-to-let’s return potential may be waning. As such, now could be the right time to buy shares in companies that can capitalise on global growth trends, have exposure to fast-growing markets and benefiting from wide economic moats.
Long-term growth trends
Clearly, it is highly challenging to forecast exactly which industries will prove to be the fastest growing in the long run. Various unknown events are likely to take place in future that could cause significant change across the world economy.
However, at the present time it appears as though industries such as healthcare and technology have long-term growth potential. A growing world population that is getting older may demand increasing volumes of drugs and healthcare services, for example. Investing in companies that can capitalise on this potential tailwind could be a shrewd move.
Technological change is likely to be a constant in the long term. As such, companies in a variety of industries, such as retail and transport, that can adapt more successfully than their peers to changes that include increased automation may deliver improved financial performance. Therefore, investing in those companies could prove to be a shrewd move.
Identifying and investing in companies that have an economic moat may be a sound move. They may, for example, have a lower cost base than many of their sector peers, or could benefit from a stronger degree of brand loyalty.
Companies with an economic moat may be better placed to post resilient levels of profitability should the world economy experience an uncertain period. They may also have the capacity to grow their bottom lines at a faster pace during a period of economic growth. As such, they may offer a relatively attractive risk/reward ratio.
As mentioned, the prospects for the UK continue to be uncertain. From a political and economic perspective, there are risks ahead in 2020. As such, investing in economies that are expected to grow at a fast pace could be a highly profitable move.
Emerging economies such as China and India are expected to deliver GDP growth of over 6% in 2020, which is around four times higher than that of the UK. With the FTSE 100 being an internationally-focused index, it could provide the opportunity for investors to access fast growth rates that lead to significantly higher returns than those available in buy-to-let properties. This could improve your chances of making a million in the long run.
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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 2019