Markets remain depressed by the continuing uncertainty caused by the Covid-19 pandemic. We’re in a recession right now. And many people fear economic recovery could take some time. As such, some investors may feel Bitcoin has greater investment potential than FTSE 100 shares. After all, the cryptocurrency has little correlation to the wider economy.
However, the long-term prospects for the stock market could be more attractive than Bitcoin. Many FTSE 100 shares are trading at low valuations. History shows that investors who buy at such times gain the benefit of long-term recovery potential. This could help them retire early, particularly if they buy in a Stocks and Shares ISA, shielding their returns from tax.
Bitcoin vs FTSE 100 shares Bitcoin could become increasingly popular with investors in the short run, due to the uncertain outlook for the economy. However, it’s impossible to ascribe an intrinsic value to Bitcoin. It just sits there, earning its owner no interest. Meanwhile, its price movements are driven by nothing more than investor sentiment.
Of course, sentiment also plays a part in the movement of FTSE 100 shares. Crucially though, shares can be ascribed an intrinsic value. After all, a share represents a part-ownership of a business. Businesses generate sales and profits, and often pay shareholders dividends.
It may not be a precise science, but investors can use such tangible things as sales, profits and dividends to calculate an intrinsic value for the business. While sentiment can move a share price above or below intrinsic value in the short term, share prices tend to follow intrinsic value over the long term. As the great investor Benjamin Graham put it: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”
Recovery potential of FTSE 100 shares In the short term, FTSE 100 shares may continue to face a challenging backdrop. Although the stock market has recovered somewhat from its March lows, sentiment could deteriorate again. A resurgence of Covid-19, a deterioration in US/China relations, and a longer and/or deeper recession than currently projected are just a few of the things that could negatively impact sentiment towards FTSE 100 shares in the short term.
However, the track record of the FTSE 100 shows it has always recovered from challenging periods. Then gone on to make new record highs. Right now, I see many blue-chip companies capable of navigating the current short-term challenges. Capable of returning to their pre-pandemic levels of sales, profits and dividends in the medium term. And capable of increasing all these things over the long term.
Similarly, I see many share prices returning to pre-pandemic levels over the medium term. And the potential for many ‘multibaggers’ for buyers today over the long term.
Retire earlier! Investors who bought a diverse range of FTSE 100 shares at low levels after the dotcom crash and financial-crisis meltdown are very likely to be sitting on high long-term returns. As such, despite the short-term challenges, it could be a shrewd move to follow the same strategy today. It could significantly improve your long-term financial prospects. And that includes bringing your retirement date a big step closer!
The post Forget Bitcoin. I’d buy cheap FTSE 100 shares in an ISA to retire early appeared first on The Motley Fool UK.
G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020