What will be the best investment of 2021? My money’s on UK shares. This may seem an odd choice right now. After all, the FTSE 100 is still down by 10% over the last 12 months despite staging a strong recovery from March’s crash.
By contrast, gold is worth 20% more than a year ago. Bitcoin has outperformed both gold and stocks, rising by about 340% over the same period.
House prices have done well too. The pandemic lockdown triggered predictions that house prices would crash. But what actually happened was that prices rose when estate agents reopened, as home movers rushed to take advantage of the stamp duty holiday. According to building society Nationwide, house prices rose by 7.3% in 2020.
That’s right. Even as the UK faced recession, rising unemployment and an uncertain Brexit, house prices outperformed shares.
Why I’m not buying Bitcoin or gold
Shares underperformed all the obvious alternatives last year. So why would I keep buying them in 2021?
There are a few reasons. First of all, I’m looking for long-term investments that generate income as well as growth. That rules out gold and Bitcoin. Neither of these alternative assets generate income. Their value is dependent on trading demand and can rise and fall unpredictably.
Bitcoin is particularly volatile. Since hitting a new all-time high of $41,962 last weekend, the price has already fallen by 16% to around $35k. I understand that cryptocurrencies may have a long-term future, but I’d only be prepared to bet a tiny amount on Bitcoin at current levels.
Buy-to-let could deliver
That leaves me with property and UK shares. Historically, buy-to-let property has been a decent long-term investment in the UK. Renting out houses can also generate a reliable income. But it’s not for me.
For one thing, renting out houses carries higher costs than investing in shares. Landlords also face a lot of extra hassle compared to stock market investors.
However, my real concern about buy-to-let property is that I don’t think it’s the right time to buy. According to Nationwide, the average UK house price has risen from about £160,000 to £230,920 over the last 10 years.
During the same period, the average house price-to-earnings ratio has risen from about 3.7x to more than six times average earnings. That tells me house prices have risen much faster than wages. I’m not sure that can continue.
Shares will be my best investment of 2021
Many of the UK shares I bought last year are showing a healthy profit now. That’s because I was able to buy during the market crash, when valuations fell sharply. Back in April, many good stocks looked cheap.
One of the great attractions of shares versus property is that you can buy and sell exactly when you want. I was able to take advantage of cheap shares prices in April, for example. But I’d have struggled to buy cheap houses during the same period.
I believe the UK stock market still offers good value. By selectively buying good quality stocks in 2021, I’m confident I should be able to outperform gold, Bitcoin, and property over the coming years.