The FTSE 100 broke past 8,000 points this month, with The Economic Forecast Agency predicting the index will reach as high as 8,922 by July. As such, now might be the perfect time to start loading up on the UK’s leading growth stocks.
Forecasts should always be taken with a pinch of salt. After all, they’re often inaccurate but can provide some helpful insight into the state of the stock market. And compared to the 3% gain Cash ISAs are currently offering, the potential of a near 15% return in just five months is a far more attractive proposition in my mind.
This sort of performance from mature enterprises certainly sounds unusual, potentially even too good to be true. However, it’s worth remembering that stock market recoveries and the moment that follows them have always been some of the best-performing periods throughout history.
Growth opportunities
The FTSE 100 is home to Britain’s largest enterprises. And compared to the FTSE 250, the index hasn’t exactly got a reputation for containing many growth stocks. But there are some exceptions. For example, AstraZeneca has been on a roll in receiving regulatory approvals for new drugs sending its share price up by nearly 30% in the last 12 months. Meanwhile, the FTSE 100 has only mustered a 5.5% gain over the same period.
Thanks to the 2022 correction, growth stocks have fallen largely out of fashion. With investors feeling less confident, capital often ends up getting shifted to more boring but stable companies. After all, these do typically provide some shelter from volatility. And yet, this is why buying growth stocks today could be the more lucrative move.
Historically this section of the stock market is notoriously overvalued. But with share prices being pulled back, valuations are looking far more reasonable, especially considering the long-term potential of some of these businesses. They may even pave the way to market-beating returns delivering far higher than the projected 15% gain of the FTSE 100 index!
Taking a step back
As exciting as these growth opportunities seem, there’s no denying that risks are still high. Interest rate hikes by the Bank of England are set to continue. And that doesn’t exactly provide the best environment for stimulating growth.
As such, growth stocks, even in the FTSE 100, may continue to carry depressed valuations in the near term. They could even tumble further should economic conditions take a turn for the worse.
This is where a Cash ISA has the upper hand. While a 3% average offering suffers by comparison to potentially lucrative stock investments, any deposits made are practically risk-free. Needless to say, this security can provide substantial peace of mind, especially during a cost-of-living crisis.
Having said that, the risk-reward potential of FTSE 100 growth stocks today is highly appealing in my mind. And while it’s essential to maintain some cash reserves, investing any excess capital could be the far smarter move, even with the increased risk.
