If I had £10k sitting in a savings account, I’d likely be thinking about where the best home for the money might be. Interest rates on savings accounts have risen over the past year but still aren’t that attractive. One option I’d definitely be considering is investing in certain FTSE 100 stocks. When I consider the potential long-term returns, there’s a powerful argument to be made.
Setting the parameters
To get everything in line, I need to get my timeline straightened out. I’d like to double my money but aiming to turn £10k into £20k isn’t something that can happen overnight. The stocks I’m planning to buy should have strong growth rates (more on that later) but I still need to wait several years to see the fruits of my labour.
So my first step is deciding I’d like to reach my target in a decade. The average annual target return from my portfolio is 10%. Thanks to the benefit of compounding, if 10% is achieved then it should actually take less than a decade, but let’s give a buffer.
Here’s how 10% compounded would look year-by-year:
| Year | Value |
| 0 | £10,000 |
| 1 | £11,047.13 |
| 2 | £12,203.91 |
| 3 | £13,480.47 |
| 4 | £14,893.54 |
| 5 | £16,453.09 |
| 6 | £18,175.94 |
| 7 | £20,079.20 |
| 8 | £22,181.76 |
| 9 | £24,504.48 |
| 10 | £27,070.41 |
Next up is the composition of my portfolio. I’m not going to put £10k in just one company. This is too risky and not diversified at all. Rather, I’m aiming for around 10-12 stocks. This ultimately will help me stand a better chance of reaching my target. Even if one or two firms really underperform, the rest of the portfolio should be able to negate this impact.
Stocks to pick
In targeting a 10% return each year, I have a few different options. If I just pick dividend stocks, I’m going to struggle to obtain such a high payback. If I just pick high-growth stocks, the difficulty in trying to pick those that will take off in the future is also clear.
Therefore, I’m going to go for a happy medium. Half of my stocks would be income shares. I’d include the likes of Aviva (yield of 8.98%) and Glencore (7.33%).
To aim for outperformance, I’d pick some stocks I believe could supercharge my profits. This would include Marks & Spencer and Ashtead Group.
My thinking is simple. I can hopefully bank on achieving a blended yield of around 7%-8% just from the income shares. In order to hit 10% or above, I just need a few of my growth shares to perform well to push the average total return up.
Risks but also rewards
Given that the FTSE 100 contains the largest companies on the market, the potential for further high growth is tough. Penny stocks and small-cap names could offer greater growth potential. Yet firms like that also carry much higher risk.
Investors also need to be aware that future income from dividend shares isn’t guaranteed. Changes in the dividend per share could negatively impact my overall return.
That said, I feel that it’s definitely possible to construct a portfolio now with £10k that could double in value in a decade.
