Now more than ever, I feel the need to try and make my money work smarter. We’re now in a scenario where growth is slowing, inflation is rising, and interest rates aren’t keeping pace. This means that I need to find better options in the FTSE 100 to try and increase the value of my money. Here are my three top ideas at the moment.
Buying FTSE 100 value stocks
It might sound a bit of a dull idea to go out and buy value stocks. During the bull run that we’ve seen in recent years, growth stocks often outperformed value shares. However, the world is now in a different place than it was even one year ago. That’s why I think value stocks could be a good home for my money now.
Value stocks tend to be established companies that might not have exponential revenue growth, but do have a strong residual value. Therefore, when the share price falls, it can represent a good buying option as the price should eventually move back to fair value.
Given the recent volatility in the FTSE 100, there are some value stocks that have fallen by at least 20% in the past year. Clearly, not every stock is a good value play, but my homework should help me to filter for the right ones.
Taking advantage of high dividend options
The average FTSE 100 dividend yield has been creeping higher in recent months. It currently sits at 3.81%. However, there are 13 companies with a dividend yield below 1%. This pulls the average down, meaning that there are plenty of options with a yield higher than the stated average.
Ideally, I’d like to buy stocks with a yield above 9.4% (the current rate of inflation). This would allow me to earn a positive return, even after taking into account the erosion from inflation. There are a handful of stocks that could achieve this.
Alternatively, I can buy some other options with yields in the 4%-7% range. This contains some companies I like including NatWest Group, BT Group, and Aviva.
I’m aware of the risk that dividend income could be cut in the future. As it’s not guaranteed, I want to spread my money over several shares in order to reduce the impact of a cut dividend.
Reinvesting promptly
My third idea to make my money work smarter is not to simply leave it lying around. I’m sure I’m not the only one that has received a dividend payment and has left it sitting in cash for several weeks before doing anything with it. Or I’ve sold stocks for a profit in the past and not reinvested the money straight away.
Obviously, there might not be a golden opportunity ready to go. But I want to get in the mindset of reinvesting my money as soon as possible. This helps me to reduce the potential to miss time out of the market.
For example, if I receive a dividend, I’m going to put that money back into the same stock. This will allow me to compound my shareholding and future yield going forward.