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When looking at the stock market during the day, it can whipsaw higher and lower. Yet when considering the performance over a decade or more, the historical trend is up. By picking smart companies to invest in and being regular in allocating money to the market, here’s what £450 a month could end up turning into.
Focusing on the future
I’m assuming that an investor wants to pursue a growth strategy. Of course, there are limits on this relative to the risk involved. For example, I wouldn’t suggest putting everything in penny stocks. But I’d be looking to put most of the money into stocks in sectors that have significant potential for the coming decade.
Some of the sectors I’d focus on are artificial intelligence (AI), renewable energy, healthcare, and FinTech. I believe these areas offer the best growth potential while allowing an investor to buy established and reputable companies. With the £450 each month, this can be split between the best two or three ideas at that moment. I’d avoid splitting it between many stocks, as transaction fees can erode gains.
The main risk with this strategy is if my view of future trends is wrong. It could be that something like AI is overhyped, with adoption rates lower than I predict. Or FinTech disruption could get stunted by tougher regulatory pressures.
Healthcare options
One stock that would be worth considering for inclusion in this strategy is the Target Healthcare REIT (LSE:THRL). Over the past year, the stock’s up 31% and boasts a 5.72% dividend yield.
As the name suggests, the real estate investment trust (REIT) operates in the healthcare sector. It specialises in owning and managing care homes across the UK. It primarily makes money by leasing out the care homes to operators, benefitting from long-term contracts that provide stable income.
In theory, the business also makes money from capital appreciation. Over time, the value of its assets can rise, especially as demand for elderly care facilities grows. Looking ahead to the next decade, we’ll have a growing ageing UK population, meaning that I believe the REIT could do well.
The share price should grow as the net asset value (NAV) of the properties increases. However, one risk is that investor sentiment dampens any gains due to interest rates staying higher for longer. As Target Healthcare uses debt to finance new projects, high interest rates mean higher costs for financing.
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Building value
I’m going to assume an annual growth rate of 9% for the portfolio when factoring in both capital gains and dividends. £450 a month could turn into £88.1k after a decade. Of course, this is just a projection. Many factors could mean this ends up being higher or lower. But as a benchmark, it’s good for investors to visualise the potential that exists in the stock market going forward.
