I’d like to try to double my money investing in shares. Although that sounds like something I’d need a lot of money to do, I reckon it’s possible even with a fairly modest sum.
Here’s how I would put £500 to work investing in shares now, to try to make a 100% return.
Focus on capital preservation
With a limited capital pot, my margin for error would be small. Any stock market typically contains some shares that could double in price – but equally could go to zero.
So, I’d focus first and foremost on capital preservation. Instead of throwing my £500 after a faddish or unproven name, I’d look for shares in companies that are long-established and have demonstrated their ability to generate profits.
Past performance isn’t necessarily an indicator of future performance. So while I would begin with a focus on risk management, I’d also consider future prospects in hunting for companies that I felt had resilient prospects.
How I could double my money investing in shares
Practically speaking, there are three ways I could double my money.
First would be to pick shares that could double in price. That’s possible – shares I hold such as Stagecoach have doubled in recent months, for example, although the one-year share price growth of 27% is less dramatic. But if a company is successful with good prospects, efficient market theory suggests that should largely be reflected in the price. So finding shares that could double in value is possible, but typically not easy.
A second approach would be to double my money through income. I previously outlined how investing in a high-yield share like tobacco specialist Imperial Brands could double one’s money over the long-term if dividends are maintained. That appeals to me, but it requires patience. Imperial’s current yield of 8.8% would prospectively double my money through dividends alone only after 12 years, albeit with the ever present risk of a dividend cut.
Thirdly I could consider investing in shares and aiming for a mixture of capital growth and income. For example, a share like M&G currently yields over 8%. But whereas long-term demand for tobacco could fall, I think growth in financial services demand could lead to share price growth.
Growth and income
In fact there are a few shares right now which I think offer attractive prospects for capital growth and income.
Aside from M&G, another is BP. Its dividend yield is 5.4%, which is attractive although would take close to 20 years to double my money. But I also think the company has long-term growth prospects. Many investors see a risk of oil use declining. I expect it to hold up well thanks to population growth and industrial uses, while recent capex cuts across the industry could help push prices higher in coming years as new supplies are constrained. But BP also has a growing business in alternative energies. The long-term profitability of those might not be as good as oil. But its energy expertise could help it perform well in the emergent sector.
