Are there any alternatives to ASX shares if you want to build long-term wealth in 2020?
Over the last few years, the answer to this question was moot. ASX shares had one of their best years in 2019, with the S&P/ASX 200 Index (ASX: XJO) rising by more than 20% – why would you look for an alternative to that?
But here in the cold, harsh world of 2020, the song does not remain the same.
Year-to-date, the ASX 200 is still down around 20% – which pegs it back at the levels we saw in 2016. Yes, the index has rallied considerably in the last few weeks, but that has only cancelled out the worst of this year's falls.
Today, the ASX 200 lost another 5% in one of its worst days since March. With all of this volatility, I'm sure some investors out there are wondering if there are any alternatives to ASX shares – anything that will not keep you up at night with worry and uncertainty.
Well, the answer is complicated.
Some alternatives to ASX shares?
There's always property of course. Property has always been the favourite Australian pastime when it comes to investing.
But I would hardly describe the property market as 'ripe with bargains' right now. You won't get a very high yield on cost if you buy most properties within a capital city, which in itself will likely set you back multiple years' worth of your salary. And it's not like the property market isn't going through its own uncertainties and volatility right now.
There's also bonds or gold – the traditional 'safe haven' assets.
Bonds have historically offered a decent alternative to ASX shares – giving investors safety and peace of mind in exchange for a smaller return. The only problem is that bonds are essentially worthless (in my opinion) today. Record-low interest rates have resulted in government bonds yielding less than what you can get in a bank account. Right now, the Australian government 10-year bond will net you under 1% per annum – hardly a path to preserving wealth, let alone building it.
Meanwhile, gold has potential for its tendency to act as an inflation-proof store of value and a hedge against currency depreciation. But gold offers no yield, is costly to store and also won't help you to compound your wealth over time.
So that leaves few alternatives out there to ASX shares.
But you already knew that! Yes, the share market can be a scary and volatile place to have your money. But the truth is that it remains the asset class with the best shot at building long-term wealth in my view.
The trick is buying good companies that can weather whatever storm is thrown at them. The wealthiest people in the world have typically had most of their wealth tied up in shares for decades. Does Warren Buffett or Jeff Bezos or Elon Musk bail out of shares when things get shaky? No, otherwise they wouldn't be in the positions they are today.
If you want complete safety of capital, ASX shares probably aren't for you. But if you're willing to ride out the ups and downs over many years, stick with shares and I don't think you'll be disappointed!
