A Self-Invested Personal Pension (SIPP) is an alternative to an ISA that I can use to invest money in a tax-efficient way. The tax benefits are a big plus when considering how to invest, but I have to remember that once I’ve put the money in, I can’t take it out of my pension until I hit 55. Yet when I consider an investing goal of trying to double my money, time can act as my friend.
Making the goal realistic
I want to assume that I’ve got £4k ready to go right now and that I’ve not used up any of my SIPP allocation for the year.
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I’m not trying any kind of get-rich-quick scheme, but rather the aim to double my money is over the course of a decade. When I work this backwards, it’s not a wild goal to have at all.
For example, if I can achieve an average 7% return each year, the benefits of compounding will mean that I could reach a pot worth £8k in a decade. With that in mind, the focus turns to how I can aim for a 7% return on average.
My strategy idea
The SIPP is designed for buy-and-hold investments. It’s not the right place for me to try and trade stocks each day. With that in mind, I can rule out some strategies.
One strategy that I feel would work well for this goal is to pick dividend growth stocks. To be clear, these are companies that pay out income via a dividend but also have good growth prospects.
As an example, consider the Georgian firm TBC Bank Group. It’s listed on the FTSE 250 and has a dividend yield of 5.97%. Over the past year the stock is up 23%. I’ve taken a look at the business and feel that the digital platform growth it should have going forward, alongside the tailwinds of high interest rates, should allow it to do well in 2024.
My aim would be to generate a 7% return from a mix of the dividend income and future share price appreciation.
This is just one stock in this category. My strategy would be to build a portfolio in my SIPP of different stocks like TBC Bank to diversify my exposure.
Risk and reward
By sticking to my strategy and aiming to be patient with 7% annual returns, I believe I can reach my goal over a decade. This doesn’t come without risks.
The share prices of the stocks I buy might not increase, but rather fall. This would put pressure on the dividend side of my portfolio to try and generate a positive return. Or I could get a double whammy whereby a company underperforms and cuts the dividend. This would hurt not only the dividend yield but also the share price.
Looking a decade into the future isn’t easy. But on balance, I don’t see any reason why my SIPP can’t be the tool to help me grow my wealth significantly.
