Â£100,000 is a lot of money, enough to really change my life. It would pay off a large chunk of my mortgage, or allow me to finally upgrade my old car (with money left over for new golf clubs). In pursuit of this endeavour, I think a lot of people donâ€™t realise that itâ€™s an achievable amount of money to make via sensible stock investing. In other articles, Iâ€™ve laid out my strategy to make a million, which should take a couple of decades. For Â£100,000, this process can of course be faster with a regular monthly investment.
Why stock investing?
There are numerous different ways to use your monthly salary for money-making ideas. These include buying physical gold and holding it, to selling online, or investing in Bitcoin and other crypto assets. All of these ideas have merits, but Iâ€™d suggest playing to your strengths. For example, I donâ€™t invest in cyrptocurrencies because I really donâ€™t understand them enough and donâ€™t think they offer intrinsic value.Â
So stock investing is a way I feel confident in using some of my salary to try and make money. Aside from my personal preference, stock investing historically has enabled people to generate good profits from just holding a FTSE 100 average portfolio. If youâ€™d just bought a FTSE 100 tracker fund five years ago, you would have made 15% from the share price gains plus around 5% a year in dividend payouts. This is without any active decision-making on stock picking.
A final reason why I prefer stock investing is that you can be very clear on your figures. If you just focus on dividend payouts, you know the dividend yield as soon as you buy a stock. So investing this way you can easily work out how much money youâ€™ll be making each year.
Running the numbers with Â£500
Moving on from the concept of investing in stocks, how far does my monthly Â£500 go? Letâ€™s assume the above performance from the past five years continues for the next 10 years (which I must point out might not be the case). This would give me a return of 30% from the share price, plus 50% from dividends. So an average of 8% per year. As Iâ€™m going to be active in my investing, Iâ€™ll be targeting high-growth stocks. Therefore, Iâ€™m going to add on an extra 3% per year return from my â€˜activeâ€™ investment strategy. This gives me an average return of 11% per year, which over 10 years could grow my pot to over Â£100,000.
You may think my added performance assumption is a little optimistic. I disagree. For example, I recently wrote a piece on Anglo-American and how the share price has performed very well. Over the same five-year period, the share price was up over 800%. Iâ€™m not saying that if Iâ€™d been active in stock investing Iâ€™d have put 100% into it, but it illustrates the point well. Research and quick thinking can easily add to a performance in excess of what a tracking product could offer.
jonathansmith1 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.