The FTSE 100 continues in a slow grind higher so far this year. After retaking the 7,000 point level in early spring, it managed to break above 7,200 points earlier this month. The main point is that since the stock market crash last spring, the trend has been higher. If this trend continues at the same trajectory over the next five years, I think I could achieve 100% returns from some FTSE 100 stocks.
Areas I’m looking to target
I could simply purchase a FTSE 100 tracker and hold that through to 2026 to try and take my £5,000 up to a £10,000 value. However, given that the index is a mix of 100 stocks, performance across the board would need to be very strong.
Rather, I’d prefer to pick a handful of stocks that I believe in and split my £5,000 between them instead. My first step in this regard would be thinking about the main trends over the next few years.
I think the main drivers will be renewable energy, healthcare and financial services. These are the primary three areas I would target with FTSE 100 stocks.
For renewable energy, I think that ESG investing is becoming increasingly popular. With a drive from various stakeholders including the Government, businesses and even customer demand, I feel renewable energy is only going to further gather steam into the future.
Healthcare is something that I think will be relevant even without Covid-19 vaccines. When I couple an ageing world population with rising income in the developed world, I feel people will be spending more on healthcare in years to come.
Finally, I’d look for FTSE 100 stocks within financial services. I think this is a low-risk play given the fact that throughout history, banks have always had a place in society. Bar the financial crisis of 2008, the profitability in this area has been shown.
FTSE 100 stock returns
To double my money in five years, I need to be looking at returns of around 20% a year. When I add compounding into the mix, the actual number is slightly less.
When I look at the performance over the past year of FTSE 100 stocks in my target areas, most of them have gained 20% or more. I do note that this has been during the recovery period of the index. So going forward returns might not be as strong. Yet I feel that I’m not trying to push too hard to reach my goal.
With my £5,000, I’d look to pick two stocks from each area to invest in. One would be a fairly low-risk stock, with the other being higher-risk. I feel this would give me a mix of opportunities along the way.
For example, take financial services. As a low-risk play, I’d look to buy shares in a bank such as NatWest. The bank is in a good position as I write. For the higher-risk idea, I’d potentially consider buying shares in Lloyds Banking Group. Although the share price is struggling, I think it could resolve the problems it has when looking out five years.
Overall, by thinking about the bigger picture over the next five years, I feel I can target FTSE 100 stocks with good returns, although it’s not guaranteed, of course.