The recent stock market crash may have inspired investors to seek out reduced risk assets such as gold and cash instead of stocks.
However, while assets like gold, cash, Bitcoin, and buy-to-let property might look more attractive in times of uncertainty, over the long run, stocks might be the better investment.
That’s particularly true if you’re trying to make a million.
Stocks vs gold
The gold price has been on a tear recently. The price of the yellow metal is closing in on its all-time highs.
Nevertheless, while gold might have been an excellent asset to hold recently, over the long term, it has been a bit of a disappointment. Investors who bought the metal in 2011, for example, have seen a negative return, after including management fees.
Cash ISA investors have seen a slightly positive return on their money over the same period. The same seems to be true for buy-to-let investors (although the figures vary from region to region). Bitcoin has yielded some of the best investment returns during this period.
Since 2011, the value of the cryptocurrency is up more than 6,000%. However, back then, the crypto asset was a niche product that was difficult to buy. It also suffered from significant security issues, as it does now.
By far, the best asset to own over this period in terms of returns, liquidity, and security has been stocks. During this time, the FTSE 250 has produced an average annual return for investors of around 12%. That suggests a total return of more than 220% since 2011.
Investing for the long term
Considering all of the above, if I had to pick just one asset to own for the next 10 years, it would have to be stocks and shares.
Unlike buy-to-let properties is easy to buy and sell these assets. Bitcoin might produce higher returns during the next decade, but it is expensive to trade the cryptocurrency, and security has been a problem in the past.
Meanwhile, the low returns on offer from Cash ISAs rule out these products. As noted above, the price of gold has been a poor investment historically, despite its recent strong price performance.
The road to a million
Using past performance data, it is possible to forecast how long it would take an investor to make a million using the stock market. As noted above the FTSE 250 has produced an average annual return of 12% per annum during the past decade.
At this rate of return, it would take around three decades to build a £1m nest egg with contributions of £300 a month.
While some investors might want to avoid investing in stocks due to the recent market volatility, equities have a strong track record of creating wealth for investors over the long term. It is unlikely that this will change any time soon.