Many FTSE 100 stocks look incredibly cheap right now. That’s what happens in a stock market crash. However, you need strong nerves to invest today, as the UK careers towards recession.
Some may be tempted to leave money sitting in a Cash ISA instead. Others will take a very different view of risk, and buy cryptocurrency, like Bitcoin. Personally, I’m staying loyal to the FTSE 100. The crash in March means that many large-cap stocks are now simply too cheap to ignore.
Cash is perhaps the biggest loser in the Covid-19 crisis, just as it was during the financial crisis. The Bank of England has cut base rates twice, to just 0.1%. Even the very best easy access accounts pay just 1%, and they probably won’t give you that for much longer.
I’d buy cheap FTSE 100 stocks today
This week, the Bank even floated the idea of negative interest rates. That will strike fear into savers, and rightly so. Returns on cash are likely to fall even further if it does.
At least cash is safe, as your capital is protected. With Bitcoin, its value swings dramatically from one day to the next.
Right now, Bitcoin trades at just over $9,000. Where it goes next is anybody’s guess. Today’s price looks like an expensive entry point to me. Its aficionados still haven’t found a practical use for the world’s most popular crypto. Claims that it is a safe haven in a storm turned out to be wrong when the coronavirus crisis struck. Buying it is pure speculation. That’s why I’m sticking with FTSE 100 stocks.
Bitcoin is too unreal for me
FTSE 100 shares are not abstract financial instruments – they reflect the performance of real businesses that produce real goods and services, employ real people, and generate real profits. When the real world economy recovers, they will benefit.
Investors who bought FTSE 100 stocks while they were cheap will reap the rewards. Many large-cap companies still pay attractive dividends, even if many others have cut. This gives you income on top of growth.
Farewell to the Cash ISA
You do not get any income from Bitcoin these days. You won’t get much interest on a Cash ISA either, these days.
To reduce the risk of investing in today’s turbulent FTSE 100, I would look for companies with strong balance sheets, steady revenues and a dominant market position. They will best placed to survive the recession, and benefit from the recovery. If you buy inside a Stocks and Shares ISA, your returns will be free of income and capital gains tax.
The FTSE 100 is still down almost 20% from its January highs. Some stocks on the index are now to cheap to ignore. I would buy them over a Cash ISA or Bitcoin any day.