Back in December, I asked whether I should stay out of the FTSE 100 until after Brexit. With the stock market falling and no deal in sight, avoiding stocks might have seemed logical.
Many shares have bounced back as we’ve headed into 2019, but there’s still a lot of risk for UK investors. With Brexit now more uncertain than ever, a cautious approach would be understandable.
Today, I want to consider some of the most popular alternative investments, and then explain why I’ve been buying stocks.
Can Bitcoin recover?
The original cryptocurrency has lost 68% of its value over the last year. By comparison, the FTSE 100 has fallen just 11% over the same period. The big-cap stock index has also paid a dividend yield of about 4%.
Although I see a lot of potential in blockchain technology, I don’t believe Bitcoin has a mainstream future. The reality is that Bitcoin has no intrinsic value and is very volatile. It isn’t recognised as a national currency and generates no income. Using Bitcoin for payments is usually either difficult or impossible.
My view is that the cryptocurrency boom has now bust. I expect Bitcoin to keep falling this year.
Buy-to-let could be better
Buy-to-let has been a great investment for many Brits over the last 20-30 years. As my colleague Kevin Godbold explained recently, buying houses to rent delivered attractive returns back in the 90s, when house prices were much lower.
The problem now is that rents are lower than they used to be, when measured against house prices. For landlords, this means lower returns. On top of this, government rule changes mean that costs and tax bills are rising for many landlords.
In short, it seems to be much harder to make money from buy-to-let these days. Although it’s a good idea in theory, I don’t think now is the right time to get involved.
Why I’m buying stocks
The FTSE 100 has steadied this year and started to edge higher. If you’re considering putting money into an index tracker, I think the FTSE looks good value at the moment. The big-cap index currently boasts a price/earnings ratio of 11.4, and a dividend yield of 4.6%.
It’s worth remembering that many of the companies in the index earn most of their money overseas and are unlikely to be affected by Brexit. If you’re looking to diversify your investments away from the UK and collect reliable dividends, I think companies such as Royal Dutch Shell and HSBC Holdings could be excellent buys. Both companies offer well-covered 6% dividend yields at the moment.
Other potential choices for international investors include Intercontinental Hotels Group, tobacco group Imperial Brands and drinks giant Diageo.
UK stocks to buy?
I don’t know what’s going to happen after March 29 when we’re supposed to be leaving the EU. But I think there’s a decent chance that many UK businesses will continue to perform well, whatever happens.
This view isn’t without risk. I really could be horribly wrong. But if I’m right, I think there are good opportunities for buyers of stocks such as easyJet, Aviva, and most of the big house-builders.
Your views may vary. But unless you’re expecting a repeat of the 2008 financial crisis, I think now is a good time to be buying stocks of some kind.