Some investors feel that putting all available cash to work in the stock market straight away is the best strategy. Although this can work well for some, I feel that the majority are better off in regularly investing smaller amounts on a monthly or quarterly basis. Here’s the surprising size that a portfolio could grow to in under a decade using this approach.
Strategy details
The idea focuses on two main points. One is that it’s a blended portfolio of both growth and dividend stocks. The other is that money can compound in the portfolio by reinvesting and dividends or proceeds straight back into the market.
Each month, an investor could pick one or two stocks that appeal to purchase. Over time, it’s ideal to have a mix of growth and dividend stocks. The regular income from dividend shares can help to grow the pot, with cash then put back into the market. The potential share price appreciation from growth stocks also acts to increase the portfolio value, albeit that this profit isn’t realised until the stock’s sold.
By regularly investing each month, it allows an investor to take advantage of opportunities as they’re presented. For example, a hot new theme could develop, providing the option to buy a stock from that area. Or a dividend might be hiked for a company, making the yield very attractive and worth buying.
Based on an average dividend yield of 6% and share price appreciation of 10%, I think the overall portfolio could grow at 8% a year. Using this assumption, investing £350 a month could provide a pot worth £55.8k in nine years! Of course, this isn’t guaranteed. But it shows how quickly a portfolio can grow with the right strategy.
One to consider
An example of a dividend stock that has kept increasing the dividend per share is Phoenix Group (LSE:PHNX). In fact, it currently has the highest yield in the entire FTSE 100 at 10.29%.
The share price is up 4% over the past year, so this high yield hasn’t been driven by the stock materially falling. This provides a tick in the box for sustainability, as the portfolio is for the long term.
An interim dividend was paid at the end of October of 26.65p per share. This was an increase from the interim amount from last year of 26p. In fact, for the past five years it’s been raised.
Phoenix acquires and manages life policies and other retirement fund products. It makes money by investing the policyholder premiums as well as generating administrative fees. Therefore, it has a stable source of income which helps when it comes to paying out divdiends.
As a risk, some investors might be concerned about what’s going on with the SunLife business owned by Phoenix. It was put up for sale earlier this year as it wasn’t a core operation, but in September management said it will no longer sell it right now. Such confusion doesn’t breed investor confidence.
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Jon Smith 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.
