Want to build a £1m ISA and retire early? I’d invest in FTSE 100 growth stocks today

I think the FTSE 100 (INDEXFTSE:UKX) offers strong growth prospects that may help you to make a million.

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While the FTSE 100 may have a mixed track record when it comes to producing capital growth, the index could be poised to deliver high returns in the coming years.

Although it has experienced a decade-long bull market, the index appears to offer a wide range of stocks with low valuations. This suggests that its future prospects could be bright at a time when the world economy is forecast to grow at a rapid rate.

Through investing in high-quality FTSE 100 stocks that have exposure to fast-growing economies, it may be possible to boost your portfolio returns, build a £1m ISA and retire early.

Growth potential

As mentioned, the FTSE 100’s past performance has been somewhat underwhelming when compared to other major global indices. Even though it has produced annualised total returns of around 9% in the last decade, the S&P 500 has recorded total annual returns of around 14% during the same period.

Furthermore, the FTSE 100 trades less than 1,000 points higher than it did 20 years ago. Certainly, dividends have meant that its total return is positive since 1999, but investors aiming for capital growth during that time have been left feeling disappointed.

This though, could mean that the FTSE 100 is ripe for growth. It appears to offer a wide margin of safety when compared to other major global indices, despite the fact that the majority of its constituents’ sales are generated outside of the UK. This means that it has the capacity to trade on a similar valuation to other indices that are dependent on the world economy, since their members are likely to operate in the same economies.

Risks

While investing in the FTSE 100 includes the risk of capital loss, it is potentially lower than across the remainder of the UK stock market. Large-cap shares are generally better diversified than their smaller peers, and have balance sheets that are stronger. This can mean that they are less susceptible to risks such as losing a major customer or experiencing a difficult set of trading conditions in a specific economy.

As such, investing in the FTSE 100 could produce an appealing risk/reward ratio for many investors. In other words, it appears to offer high potential rewards given its risks. And, though diversification, it is possible to reduce overall risk even further.

Outlook

Clearly, the FTSE 100 is unlikely to post perpetually high returns that are unchecked by risks such as Brexit and a global trade war. But for investors who are seeking to build a £1m ISA, the index could be a realistic option due to its low valuation and the growth prospects that it offers.

With a wide range of its members having strong earnings growth forecasts and solid balance sheets, now could be the right time to buy a range of large-cap shares. They could boost your financial prospects and enable you to retire early.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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