Everywhere you look, there are cheap FTSE 100 stocks that merit your attention. It always happens after a stock market crash. When investors panic, they sell off good companies along with the bad, leaving bargains scattered in their wake.
Yet many investors may be considering other asset classes instead. For example, cash, buy-to-let and gold. While it’s good to have a balanced portfolio, my focus right now would be cheap FTSE 100 stocks, and here’s why.
Cash is a disaster zone. The Bank of England has slashed base rates to a record low 0.1%. It’s even talked about introducing negative rates. That raises the dismal prospect of savers paying banks to look after their money. While everybody should have some cash on easy access for emergencies, this is no place to keep your long-term wealth. The real value of cash holdings will fall, year after year, as inflation gets to work.
Cheap FTSE 100 stocks tempt me more
By comparison, if you invest in cheap FTSE 100 stocks, you can get income of between 4% and 6% a year, and in some cases more. You also get the prospect of capital growth on top. Shares are more volatile in the short run, but far more rewarding over time.
Investing in a buy-to-let property may look more tempting, especially given the current stamp duty holiday. I’d tread carefully though. House prices are rising rapidly, but that’ll be hard to sustain as unemployment surges. I suspect this could be the last hurrah for the housing market.
Also, buy-to-let is incredibly bothersome. As an investor, you’ll pay a 3% stamp duty surcharge. That’s on top of conveyancing and mortgage arrangement fees, maintenance and repairs, and all the trouble of finding and replacing tenants. As if that wasn’t enough, the tax treatment is punitive.
You can invest in cheap FTSE 100 shares through a Stocks and Shares ISA and take all your returns free of income tax and capital gains tax, for life. Unlike property, you can trade in seconds, pay stamp duty of just 0.5%, and don’t have to deal with estate agents or tenants who can’t or won’t pay the rent.
Cash, buy-to-let and gold aren’t for me
Gold is a safe haven in a crisis and, boy, do we have a crisis on our hands. The precious metal has risen about 25% this year, bursting through $2,000 an ounce for the first time. While every investor should hold some gold for diversification, I wouldn’t buy it now. The price has been trailing down, and its best days maybe over for now.
The big disadvantage of gold is that it doesn’t pay any income. That’s another reason why I favour cheap FTSE 100 dividend stocks, because they do. Better still, they offer a rising income, as companies endeavour to increase payouts year after year.
While more than a third of FTSE 100 companies have suspended dividends this year, a growing number of stocks are restoring them. I’d buy them today, while they’re still cheap.