The recent positive performance of the gold price may have attracted some investors to the yellow metal.
However, over the long run, the performance of gold has lagged behind that of the stock market. As such, I think owning stocks and shares could be the better long-term investment decision.
With that in mind, today, I’m going to explain how I would invest £20,000 in the market today to make a million.
Gold price problems
The big problem with gold as an investment, in my view, is its speculative nature.
The gold price is only worth as much as other people are willing to pay for it. Recently, as investors have become concerned about the outlook for the global economy, the value of the yellow metal has increased. Unfortunately, there’s no guarantee this trend will continue.
On the other hand, we know that over the past couple of hundred years, the value of the stock market has grown in line with the global economy. I think this trend is likely to persist. But I’m not so sure about the outlook for gold.
Considering the above, I think the best way to invest £20,000 would be to buy a diversified basket of blue-chip stocks. Companies such as GlaxoSmithKline and Reckitt Benckiser may be the best investments to own considering their defensive nature, strong balance sheets and history of returning excess profits to investors with dividends.
Some other options include distribution group Bunzl and health and safety business Halma. Over the past decade, these stocks have produced average total annual returns for investors in the high single-digits. Some have produced double-digit yearly total returns for investors.
According to my calculations, a basket of these stocks would turn £20,000 into £1m within 39 years. That’s assuming a total annual return of 9% and additional monthly contributions of £100.
I reckon it would be difficult to achieve similar returns using the gold price alone. That said, some investors may feel more comfortable owning gold in their portfolio alongside blue-chip stocks. This is perfectly acceptable and may reduce risk. The gold price tends to increase in times of uncertainty when stock markets are falling.
As such, owning gold in a portfolio alongside stocks may reduce volatility, although it could hold back returns. Still, for some investors, this may be an acceptable trade-off.
The bottom line
So that’s how I plan to invest £20k today to make a million. This strategy can be used with any amount of money. Buying a basket of high-quality blue-chip stocks is unlikely to lead to disastrous results, especially if investors concentrate on companies that have a good track record of producing high total returns for investors.
Following this strategy could help an investor turn £20k, or any other lump sum amount, into a large financial nest egg in the long run.
The post Forget the gold price! Here’s how I’d invest £20k today to make a million appeared first on The Motley Fool UK.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended GlaxoSmithKline and Halma. 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