I think I’m like many people in the sense that I try and mentally allocate money to my savings account each month.
From month to month, the actual amount I save depends on many different things. But in principle, my savings can go towards my investments, such as FTSE stocks. My aim over the long term is to build a pot that can help me retire by the time I hit 60. Here’s my game plan.
Pros and cons of shares
There are plenty of options where I could invest my savings each month. The reason I like using the stock market is because it allows me to invest in any amount. Further, I can easily buy and sell stocks on the market. This contrasts to some other investments where my money is locked up for a much longer period, or that gives me limited access.
The downside to stocks is that the value can fluctuate a lot more than alternatives. With a high interest savings account, my capital isn’t really at risk. If I buy bonds, the value does change but it’s less volatile than shares.
However, when I’m trying to retire early, my focus is on compounding high returns in the next couple of decades. The upside potential for stocks is higher (in my view) than many alternatives.
A growth stock case
As an example, consider Alpha Group International (LSE:ALPH). The foreign exchange and payments provider has grown well over the past few years. Although the stock’s only up 6% over the past year, over the past five years it’s up 200%!
The business continues to grow as it attracts new corporate and private clients that it helps to convert currency and provide alternative banking solutions. The firm makes money from commissions from these transactions. So the more clients it has and the more active they are, the better things are for Alpha.
This is a growth stock I feel can continue to rally over the coming five years and beyond. Last quarter it entered the FTSE 250, but with a market-cap of £1bn there’s plenty of room to increase before it gets so big that things plateau.
Alpha’s reliant on UK businesses doing well in order to keep being active and trading internationally. Some will see this as a risk, especially if the UK economy underperforms. However, the flipside is that if we get a strong recovery over the coming couple of years, the Alpha share price could accelerate even more.
Growing £400 a month
I’m thinking about adding Alpha to my portfolio, but let’s say that overall I can have a group of stocks that grows at a rate of 8% a year on average.
If I can put £400 a month towards my portfolio, this can grow over time. After 12 years, my pot could be close to being worth £100k. By the time I reach 55, it could have grown to £262k.
Granted, these are just forecasts, but it does highlight the power of the stock market.
This post was originally published on Motley Fool
