The beauty of the stock market is that I can make money in a variety of different ways. The most prominent one is from buying a stock and having it appreciate in value. However, I can also profit from dividend income from shares, and other methods. When I’m trying to achieve a 100% return on my money, here are my favourite investment ideas at the moment.
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Off to the races
The first idea is a growth compounding strategy. This involves me buying a selection of growth stocks over time. When I look at the five-year historical returns from some growth shares such as Apple, Amazon, Netflix and others, I can forecast using a 10% average annual growth rate.
Let’s say I invest £1,000 in a selection of five top UK growth stocks now. It might seem it would take me a decade to double my money. This is wrong. Thanks to the benefit of compounding, it might only take me seven years to reach £2,000, assuming the 10% growth rate (which, of course, I know isn’t guaranteed).
This speaks to investing with a long-term horizon, as well as being patient! Clearly, growth stocks are higher-risk. In order to potentially enjoy the large returns, I have to accept that some of these companies will fall flat.
Counting the pennies
Another idea I like is trying to double my money by receiving dividends. At first glance it might look like this will take forever to build rewards.
This is true if I choose to take the dividend and spend it now. But what can really speed things up is reinvesting that money back into buying more stocks. For example, let’s say I invest £1,000 in one stock with a dividend yield of 6%. I’ll get £60 over the next year (assuming the dividend doesn’t change).
Instead of keeping this £60, if I buy more shares in the company I’ll have a value of £1,060. The following year, this makes me £63.60!
I feel I can pick a selection of dividend stalwarts with an average yield of 6%. This could include stocks such as BT Group and British American Tobacco.
From reinvesting the dividends, I could double my money in just over 11 years. I have to remember though that a risk is the share prices falling over this time, which could mean that my value is less than double.
Investment ideas from the pros
Finally, I can make use of professional money managers to try and help me achieve above-average returns.
This was highlighted back in 2020 when shares in the Scottish Mortgage Investment Trust (SMT) doubled in the calendar year. Sure, the FTSE 100 and other markets performed well. But it was the smart picks from the fund managers that caused the value of the trust to double over that period.
Last year was a completely different story, with even the professionals losing their Midas touch (SMT shares fell by 34%). Yet I think it’s clear that this area of the market has the potential to provide large returns.
I’d take my £1,000 and split it between traditional trusts like SMT, but also include some private equity exposure such as HarbourVest Global Private Equity.
I’m aiming to put all three ideas into play this year, using the specific stocks mentioned.
The post 3 investment ideas that could double my money appeared first on The Motley Fool UK.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon.com, Apple, and British American Tobacco P.l.c. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.