In my opinion, it’s harder than usual to generate a high investment return today. Interest rates are low and average dividend yields are also paltry. For me, it’s more important than ever to hold UK growth stocks. This is at least one way that I can still generate above average returns from smart stock picking.
Last year showed me that, with multiple FTSE 100 stocks delivering 100% returns in a single year. But as the post-crash stock market recovery continues, with UK growth stocks in general, there are several things I’m doing to try and squeeze the lemon harder.
Putting my money to use
First, I’m making sure that I don’t have too much cash sitting idly in my Stocks and Shares ISA. The new ISA year began last month, and so I try and put money into it, even if I haven’t actually invested it in stocks yet. This would also apply to me if I had spare cash sitting in my bank account, without an ISA.
It sounds obvious, but having cash set aside for investing that isn’t invested doesn’t make sense. I get the concept that I want to wait and buy on dips, or even have funds ready for another stock market crash. But for the most part, the sooner I get the funds into UK growth stocks, the better. Even if it’s just an extra month or two, these missed returns can hurt when multiplied over lots of stocks.
Another point worth mentioning when trying to make my money work harder is to not be afraid of holding on to loss-making UK growth stocks in the short term. By their very nature, growth stocks have higher volatility. This means that the ‘drawdowns’ (the size of the high to low share price swings) can be quite large.
In this regard, I might be sitting on a paper loss at some point if I buy during a dip (declining stocks can always fall further). However, to boost my longer-term profit, I’m actually better off staying invested. If I sell out for a loss and keep flipping into different stocks, my knee-jerk trading could make things worse. Instead, by holding my UK growth stocks for the long term, the probability is that they’ll return to the green.
One caveat here is that the above point assumes all stocks will recover. Each situation is different, so I’m not saying I never sell a stock for a loss if I see better long-term opportunities elsewhere.
Being sensible with UK growth stocks
Finally, I want to take some profit from UK growth stocks over time. This might seem counterintuitive, but hear me out. Let’s say I own three stocks, all up 50%. If I trim 10% profit off each one, it frees up funds that I can then invest in another stock.
Using my profit to buy a new stock helps to diversify my risk by adding more stocks to the pot. And trimming at certain times protects my portfolio just in case another crash comes.
Overall, from getting my funds invested through to reinvesting profits into new stocks, there are several ways I can make my money work harder.