Forget Bitcoin. I think buying cheap FTSE 100 stocks in an ISA today could make you £1m
The Motley Fool
Published Jul 04, 2020 07:55
Updated Jul 04, 2020 08:10
Forget Bitcoin. I think buying cheap FTSE 100 stocks in an ISA today could make you £1m
Making a million from FTSE 100 shares may seem unlikely compared to the opportunities offered by Bitcoin. The virtual currency has almost doubled from its lowest point in March this year, while the FTSE 100 has gained around 25% over a similar time period.
However, with a value investing strategy that focuses on the cheapest shares having a solid track record of success, purchasing FTSE 100 stocks in an ISA while they are undervalued could be a shrewd move. It may offer less risk, higher rewards and a greater prospect of making a million than buying Bitcoin.
FTSE 100 value opportunities The FTSE 100 currently contains a wide range of cheap shares. In some cases, they are trading significantly below their long-term averages, which suggests that they offer wide margins of safety.
Therefore, investors may be able to buy high-quality businesses while they offer good value for money. Historically, this has been a sound strategy that has enabled investors to put the index’s cyclicality to good use. In other words, they have bought stocks at low prices to sell them at higher prices further down the line.
Since it is possible to access a range of resources to determine the absolute and relative appeal of a FTSE 100 company’s current price level, investors can pick the most attractive opportunities within the index to build a diverse portfolio of bargain shares.
Bitcoin’s limitations Although Bitcoin has outperformed the FTSE 100 over the last few months, assessing its value is a much more challenging prospect than is the case for large-cap shares.
The virtual currency has no fundamentals, so investors cannot determine its value. Its price is based solely on investor sentiment, which can be erratic and difficult to second-guess. Therefore, this means that there is a risk of purchasing the cryptocurrency while it is not attractively priced.
With it facing risks such as a limited size, competition from other virtual currencies and potential regulatory changes, Bitcoin may also fail to produce sustained growth over the long term. This could make buying a basket of shares ahead of a likely recovery more appealing.
FTSE 100 growth opportunities The FTSE 100 may yet experience further declines in its price level that causes many of its shares to trade on even lower valuations. Despite this, its track record of recovery suggests that it is a sound proposition when it comes to seeking to generate a £1m portfolio.
Through buying high-quality companies in an ISA now while they offer wide margins of safety, you could experience high returns over the coming years. The index may lack the capacity to double in a short space of time as per Bitcoin’s recent performance, but its risk/reward ratio and track record suggest that it is a more reliable means of obtaining a seven-figure portfolio.
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First published on The Motley Fool
Written By: The Motley Fool
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