When looking to invest for the future, I want to aim to generate a large enough portfolio to make a difference as I get older. To this end, I want my portfolio to be in the six-figure range. For me, this will be enough to help me enjoy my retirement. However, a portfolio of FTSE 100 stocks worth that much won’t just fall into my lap. I’ll need to invest well over time in order to get to that end goal.
Targeting higher growth
One way I can look to reach my goal is to target high-growth FTSE 100 stocks. These types of companies usually have high earnings per share and reinvest profits back into the business to fuel future growth. This future growth, coupled with a positive outlook overall, often sees the share price rally as investors look at the potential value further down the line.
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As the outlook for high-growth FTSE 100 stocks can change quickly, volatility is usually quite high. However, given that I’m trying to get to a six-figure portfolio, I have time on my side. In this way, over several years, the growth rate by investing in these types of stocks should exceed more mature companies.
A regular investment on a monthly basis in growth stocks could allow me to reach my goal quicker than other methods. I do need to be careful of high drawdowns though. After all, these type of stocks can be hit hardest during times of uncertainty.
Lower-risk FTSE 100 value stocks?
The flipside of going for the slightly aggressive option of growth stocks is to go for FTSE 100 value stocks instead. Value stocks are those that have low price-to-earnings ratios. In other words, they are seen as undervalued. As an investor, I could buy shares in these types of companies and hold them for the long term. In this way, the share price should return to a fairer value, which would represent a profit for me.
Value stocks typically have lower volatility than growth stocks, which is positive. I personally think they also offer lower risk, as these are often established companies. The risk is that it can take a long time for value stocks to move back to a fair value, and the difference might not be that high.
So, when looking to invest £500 or £1,000 a month in value stocks, it’ll likely take me much longer to reach my six-figure goal as my compounded returns will be lower.
Overall, I can see the merits of investing in either value or growth stocks within the FTSE 100 index. In fact, I’m not limited to selecting either option exclusively. As a result, to diversify my portfolio, I’d actually look to split up my selection into a mix of both types of stocks.