If you wanted to invest £100k, there could hardly be a more difficult time to do it. Investors face choppy, uncertain markets in the midst of a global pandemic.
So today I’ll consider how I’d invest a significant lump sum for the best chance of a high return over the next 10 years.
Whether you actually can invest £100k is immaterial, really. You may have a couple of hundred pounds a month. Or, you may be lucky enough to have a few thousand on hand.
But imagine yourself already relatively rich and it makes for a good thought experiment.
It’s funny, really. The more you have to invest, the more likely you are to choose lower-risk, truly long-term options. There is less need to make money fast, and so less need to take riskier bets. You also have more to lose from ill-considered punts.
More money, less risk
It is not about turning around fast profits with extreme risk, where your ample funds could evaporate in the blink of an eye. Simply thinking in these terms tends to sharpen the mind somewhat.
But these are the facts. The lowest recent point of the market was on 23 March. The FTSE 100 is still 25% cheaper than it was three months ago. And investors are snapping up cheap shares left, right, and centre.
However, the scope and breadth of choice available for investors can be paralysing. The temptation is to spend weeks forensically scrutinising balance sheets, discounted cash flow calculations, forecasted earnings, and more before taking the plunge on any new investment.
I get it. I do that myself. But if you over-analyse, you could miss out on cheap FTSE 100 shares that will be a tremendous boost to your net worth.
Like Standard Life Aberdeen, a FTSE 100 share paying a 10% yield that is 30% cheaper than it was in January.
I would turn to Jack Welch at a time like this. The famed General Electric CEO, touted as one of the best company leaders of all time. He had the following mantra. “Don’t overbrain things to the point of inaction.”
Pick stocks to invest £100k
Stock-picking is all-important as we peer into the future. Not all companies are created equal. There are some unprofitable dogs out there, even on the FTSE 100. That’s why I don’t just invest £100k into a whole-index tracker.
Investing giant BlackRock operates the most popular FTSE 100 tracker, the iShares Core FTSE 100 UCITS. According to their own figures, this ETF has the following annualised return on investment. Minus 18.55% over one year, minus 4.25% over three years, 0.49% over five years, and 3.65% over 10 years. I think by picking stocks we can do a lot better than 3.65% a year for 10 years.
When I am choosing the best-performing stocks for the next 10 years, I make a simple calculation.
Will this business survive an extended recession? Does it have products or services that people will always need? Is it a market leader? Does it have plenty of cash on hand? Does it have low or zero debt? If there is a tick in all five boxes, I put the company on my watchlist.
Some of my recent choices have performed extremely well. Most have beaten the market, and I believe they will continue to do so for the next decade.