Some people think that doubling their money via FTSE 100 shares is a pipe dream. Of course, the chances of doing this in a matter of days are very low. Yet over the course of several years, history shows us that this is indeed possible. So if I had £2k in savings right now, here’s how I’d go about trying to make it a reality.
Targeting growth and income
I’m going to allocate a good chunk of my funds to growth stocks. After all, the FTSE 100 has some very large, mature firms that simply don’t have the scope to grow at a fast pace today. It doesn’t make sense for me to invest there, but rather to look for smaller firms in the index that have the scope to push on.
I’m also going to put some money towards dividend shares. This might surprise some. However, with the ability to buy stocks with dividend yields in the 6%-8% range, I think it’s a smart move. The income will compound in years to come. It also helps me to bank some gains even if my growth shares have a sluggish period.
With both components brought together, my aim is to grow my portfolio by 12% a year. Thanks to the benefits of compounding, if I can do this for six years then my pot would double in size.
Diversifying to reduce risk
When trying to plan anything years into the future, I have to be careful with my assumptions. If my growth targets are missed due to a stock market crash, some other black swan event, or simply stock underperformance, it could throw everything off plan.
However, to try and reduce this risk, I’d split up my £2k between 10 stocks. Doing this will help to diversify the risk of one company massively underperforming.
A case in point
As an example of a growth stock to include, I’d pick easyJet (EZJ). The business recently got promoted back to the FTSE 100 and has good momentum right now.
The stock is up 20% over the past year, as it continues to put pandemic travel woes behind it. The full-year report led with the headline of “record H2 23 financial performance with a positive outlook for FY24“.
For example, the headline profit before tax was £455m, an improvement of £633m versus the loss in 2022. It’s not just the airline passenger numbers that are doing well. EasyJet holidays continues to expect at least a 35% customer growth rate for 2024.
It’s true that the travel sector is tough to survive in. Flights are very much a price race to the bottom, given the lack of differentiation for short-haul travel. This remains a risk going forward.
If the stock was able to get back to the pre-pandemic crash levels, it would have doubled in value. I think this is a viable level to target for the coming years.
