Within the FTSE 100 and FTSE 250, there are several different types of stocks. Some are ‘income shares’ with attractive dividend yields. Others are more growth oriented. These top growth stocks are what I want to focus on at the moment. Given my preference for investing regularly each month, here’s what my portfolio could add up to if my assumptions are correct.
Points to consider
The future is uncertain. If I knew exactly which stocks would offer me the best growth, I’d be a very rich man! Therefore, I have to make some assumptions when looking at future investments.
To begin with, I need to decide on a rate of return that I’m aiming for with the top growth stocks I invest in. One way I can do this is by looking at the historical return of similar stocks over a long time period. In doing so, I’m going to assume a growth rate of 7% per year. Clearly, past performance doesn’t indicate future returns, but it does give me an idea of what I might achieve
Next I need to think about the amount of money I’m investing. I believe that £500 a month is a good place to start. The aim is to invest the same amount each month in the years ahead. I like this method as it allows me to ‘average in’ the price at which I buy the stocks at over time. Growth stocks typically have higher volatility than other stocks, so buying on dips as well as highs can help to smooth out (and hopefully reduce) my average buying price. I’d buy more shares with my monthly £500 when my chosen stocks are falling than I would when they’re riding high.
My final assumption is that I don’t take any money out of my pot over time. If I do, this can have a larger impact than I might think. This is due to compounding. If my stocks grow at 7% each year, I’ll not only lose the 7% for the next year but the added benefit of future gains going forward. So the largest benefit is leaving my money invested and not touching it.
Top growth stock performance over a decade
With all of the above agreed on, I can find out my result. My final pot value after 10 years would be £87,500. It’s interesting to note the impact of the compounding returns from my stocks. If I think about it, my contributions would be £60,000 during this period. So £27,500 would be the profit from my top growth stock picks.
As I mentioned before, this return isn’t guaranteed. To give myself the best shot at making it a reality, I need to be smart in the stocks that I pick. At the moment, I’m looking at buying stocks from key sectors including healthcare, renewable energy and financial services. I think there’s good potential for growth in these areas over the next decade.