The National Lottery, Bitcoin, buy-to-let, Cash ISA, Stocks & Shares ISA… there are many ways to try to achieve wealth. The lottery can be a relatively harmless way to gamble a couple of quid a week, but I really hope nobody is trying to use it as a serious investment.
A Cash ISA is an obvious bad choice for me too. With easy-access interest rates topping out at around 1.5% and not even enough to match inflation, it’s a guaranteed way of losing money in real terms. I’ve previously suggested a simple Stocks & Shares alternative, but there’s an even easier way.
Ephemeral coinage
Bitcoin is quite easy — you just find an online cryptocurrency exchange, pony up some real cash to buy some, and just sit and wait. The problem is, I reckon you’d be buying a lemon — perhaps not a total wipeout, but I’ll be shocked if the value of Bitcoin in 10 years isn’t significantly below today’s price.
If you read the Bitcoin media today, you’ll hear all sorts of bullish claims. I regularly read enthusiasts trying to explain away the reasons for any weakness, and banging on about what the trigger will be for the next push to record new levels. I think it’s all delusional nonsense, just like the many get-rich-quick manias we’ve seen throughout history, and I’m avoiding Bitcoin like the plague.
Buy-to-let
What about buy-to-let? That seems a more viable investment approach. In fact, I’ve had a buy-to-let house for 30 years and, in that time, it’s approximately doubled in value. But the FTSE 100 has trebled.
Some investors have done far better, but my part of Liverpool hasn’t exactly been boom town for property prices. And you also have to factor in property maintenance costs, and sometimes they can be very high. Then there’s either a lot of personal work involved, or a big slice of your income goes in agent’s fees. Had I put my money in a FTSE 100 index tracker instead, my only annual costs would have been fund management charges at around 0.5% per year.
What about all that lovely rent? Considering the voids I’ve had, the bad tenants, and the costs, I’ve averaged around 3% per year in income. Today the FTSE 100 is on a forecast dividend yield of 4.5%. It hasn’t always been that high, but it would have beaten my rental income — without any of the risk.
Tide turning
I also see the omens as increasingly against buy-to-let now, and I expect it to do less well in the future. For one thing, property prices have started to cool after a long period of rising valuations. Our chronic housing shortage isn’t going to end any time soon, but that can only push prices up so far — and not beyond what people can actually pay. I’d buy shares in housebuilders, sure (and I have some Persimmon in my SIPP), but I wouldn’t buy an investment property now.
By contrast, the FTSE 100 has had a poor five years, dividend yields are rising, and weak P/E valuations convince me that shares are undervalued with a long-term view.
I sincerely believe opening a Stocks & Shares ISA today and investing in a simple, no-effort, FTSE 100 tracker will set you up well for the decades ahead.