Growth stocks have been performing particularly well so far this year. Even though market sentiment isn’t overly positive, investors have been happy to lap up exciting stocks related to artificial intelligence, FinTech and other areas. These multi-year themes should continue to perform well, so here’s how I can take advantage to try and speed up my retirement age.
Trying to plan my potential profits
One of the difficulties in trying to forecast my return when buying top growth stocks is the broad range from past performers. For example, let’s take the five-year performance of Apple, the largest company in the world by market cap. It has gained 312% over this period, so an average annual return of 62.4%.
Tesla is another classic growth share. Over the same period, the stock has jumped 1,171%, an annual return of 234.2%.
Yet is it really that smart to assume my portfolio could grow by 234% or even 62% a year? I don’t think so. Past performance doesn’t guarentee future returns.
On the other hand, I’d expect growth stocks to outperform the broader stock market index. Over five years, the FTSE 100 is broadly flat. So I wouldn’t expect the growth areas to deliver a negative return over the next five years.
It’s very subjective, but I’m going to use an annual return of 8% for my portfolio.
The benefits of drip feeding
With my target yield done, my focus now turns to how much I can invest each month. Instead of putting away a large part of my savings in one go, I’d prefer to drip feed money into my portfolio each month. This makes things a lot easier on my personal finances.
It also allows me to build up a more diversified portfolio of stocks, as I can buy what’s hot at each point of time. By tweaking the stocks I buy over the coming years, it should allow me to catch different themes as they arise (such as artificial intelligence over the past few months).
Retirement targets
I’d like to grow my pot eventually to a size after where I don’t have to put any more money in. Rather, I’d want to start to take out the gains from each subsequent year (like the aforementioned 8%) to be able to spend, without reducing the size of my investment portfolio.
After 16 years, my pot size could be £136k. This would mean I could take out just over £900 a month (on average) from then on and keep the pot at £136k. Along with other passive income sources, I feel this would be enough to help me speed up retirement.
The big risk lies in my forecasting. If my pot doesn’t grow as quickly or if I can’t take some profits out, I could be left working for longer. Yet this can be flipped into a positive. If I manage to buy shares in the next Tesla, my 8% average return assumption could turn out to be very conservative!
