Tempted by buy-to-let? I’d invest in FTSE 100 growth stocks instead

The FTSE 100 (INDEXFTSE:UKX) could offer superior risk/reward opportunities than buy-to-let, in my opinion.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Having seen property prices rise for decades, many people may feel that having a buy-to-let is a worthwhile move at present. After all, there’s been a housing shortage for many years in the UK, and successive governments don’t appear to have been able to solve it. As such, it could be argued that there’s still potential to make high returns in the long run.

The reality, though, is that house prices are at their highest ever level compared to average incomes. With the UK economy facing an uncertain period, which could include rising interest rates, buy-to-let may not prove to be as profitable in future as it has been in the past. As such, accessing global gains through FTSE 100 growth shares may prove to be a better idea.

Challenging prospects

Although there continues to be a shortage of housing, its affordability is coming into question. Last year, house prices reached their highest level compared to average earnings. This suggests that prices are unlikely to continue to rise significantly, as wage growth may keep them held back.

Of course, a mixture of government policy and low interest rates has meant that individuals have been able to buy their first home despite prices being so high. Policies such as Help to Buy are unlikely to run in perpetuity, while interest rates will eventually rise to more normal levels. When they do, house prices may need to fall in order for them to be affordable, given that individuals will no longer be able to take on such large debts. Even a modest rise in interest rates could squeeze first-time buyers at a time when wage growth remains relatively low.

Growth potential

In contrast, investing in FTSE 100 growth shares could prove to be a sound move. There are a number of stocks within the index which have exposure to fast-growing regions of the world, and they may be able to offer high returns over the long run.

Although investing in emerging markets is not a new idea, countries such as China and India nevertheless offer exceptionally high growth rates. With their consumers gradually seeing wages rising, there could be significant growth opportunities for a range of FTSE 100 companies in future. Likewise, the US economy is growing at a fast pace, and this could cause global share prices to remain buoyant in future.

In terms of value, the FTSE 100 appears to offer relative appeal when compared to a buy-to-let. The index yields around 4.5%, which is relatively high compared to its historic range. This suggests although there may be some volatility ahead in the remainder of the year, its performance in the long run could be highly appealing. As such, now may be the right time to buy FTSE 100 stocks, rather than consider a buy-to-let.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »