The disappointing recent performance of UK shares has been in sharp contrast to the price rises of Bitcoin and gold. They have gained 50% and 25% respectively since the start of the year. Meanwhile, the FTSE 100 is currently down around 20% over the same time period.
Despite this, buying British stocks could prove to be a profitable move over the long run. Many high-quality businesses are currently trading at low prices. This suggests they could offer strong capital growth. They could even improve your chances of making a million.
With many UK shares trading at low prices following the recent stock market crash, there appear to be numerous buying opportunities available to long-term investors. Certainly, in the short run, their prices could come under further pressure should there be continued economic weakness. However, in many cases, they’ve sufficient financial strength to overcome a challenging period to benefit from a likely recovery in the coming years.
Indeed, the past performance of the stock market shows that it’s likely to post new record highs over the coming years. For example, the FTSE 100 has been able to move higher following each of its past bear markets and downturns. This suggests that investors who buy now while many shares are priced at low levels could benefit the most from a subsequent recovery.
Bitcoin and gold’s uncertain future
While Bitcoin and gold may have outperformed UK shares so far in 2020, their long-term prospects may be more challenging than many investors realise.
For example, gold is currently trading close to a record level. This suggests it may offer more limited scope for capital gains than it has done in recent years. Moreover, investors may have factored in a tough period for the economy and the prospect of low interest rates in the coming years. This could mean that gold’s future price rises are less impressive than they have been in the recent past.
Meanwhile, Bitcoin may underperform a portfolio of UK shares in the coming years. It has regulatory challenges that could dampen investor enthusiasm towards virtual currencies. Its limited size may also mean its potential to replace traditional currencies is lower than investors have priced in.
Making a million
While UK shares could disappoint in the short run due to ongoing economic uncertainty, their long-term prospects appear to be bright. Even assuming the FTSE 100 gains around 8% per year, which is in line with its historic returns, a £500 monthly investment could turn into £1m within 35 years.
However, by investing in cheap stocks today, you could obtain a higher rate of return than the wider market. This may reduce the amount of time it takes to make a million, and could further improve your financial prospects.
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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.
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