Forget gold! I'd buy dirt-cheap stocks today to make a million

The long-term prospects for the stock market could be more attractive than gold, and may be a better means to make a million in my opinion.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The rising gold price over recent months may mean that many investors see it as a sound means to make a million. After all, with the world economy's outlook being uncertain, gold's popularity could continue to rise among increasingly risk-averse investors.

However, over the long run, dirt-cheap shares could offer higher returns than the precious metal. The stock market's track record of recovery means that buying undervalued stocks may be a means of obtaining high capital returns in the coming years.

As such, now could be the right time to build a diverse portfolio of bargain stocks instead of purchasing gold.

Gold's prospects

Gold's strong performance since the start of the year means that it may be increasingly seen as a means to make a million by investors. However, its recent price rise may not continue uninterrupted over the long run.

The precious metal has historically been highly popular during periods of low interest rates, when income-producing assets have less appeal on a relative basis. Furthermore, gold is seen as a store of wealth by many investors, which is a key reason why its price has spiked in recent months in response to a downgrade in the global economy's growth forecasts.

However, over the long run the world economy's performance is likely to improve. This could lift investor sentiment, and may encourage investors to focus their capital on riskier assets such as equities. Eventual rises in interest rates may also reduce demand for gold, which could mean that its capacity to deliver further strong price rises in the coming years is somewhat limited.

Stock market valuations

While the price of gold has risen close to record highs so far in 2020, investors aiming to make a million from the stock market have been highly disappointed. However, the wide margins of safety available across many sectors of the stock market could provide an opportunity to generate high returns in the long run.

The stock market has an excellent track record of recovering from its various downturns to produce new record highs. Sometimes this can take a number of years. However, as the economic outlook gradually improves, investors are likely to become more bullish about the prospects for riskier assets such as equities. This could mean that the stock market offers substantial long-term growth potential from its current price level, with many of its members appearing to offer good value for money after their recent declines.

Building a portfolio

As such, buying a diverse range of stocks could be a sound means of generating high returns over the long run. They may not outperform lower-risk assets such as gold in the short run, but may prove to be a more likely means to make a million over the coming years as the economic outlook improves and investor confidence is restored.

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Three businesspeople leap high with the CBD in the background.
Share Market News

Boom! ASX 200 blasts to new record highs

ASX 200 investors just sent the benchmark index into uncharted territory.

Read more »