What is growth investing? A complement to any diversified portfolio aimed at building wealth over long periods of time
What is growth investing? Growth investing is the process of investing in companies that have above-average growth prospects. These growth stocks are firms whose earnings growth has been above the market average, and is likely to remain above average. It is also often the case that they pay small dividends or none at all. Instead, they re-invest their cash flow in the business, to promote their growth.
Growth investments tend to be more volatile than value stocks. But at TSI Network, we still use a long-term investment approach when it comes to growth investments—and that helps cut risk.
What is growth investing? It’s buying stocks with above-average prospects—and here’s what to look for
Many investors overlook a number of important factors that can considerably lower their risk in a successful growth investing plan.
Learn everything you need to know in 'How to Find the Best Growth Stocks' for FREE from The Successful Investor. Canadian Growth Stocks: CGI Group, CAE Inc., Fortis Inc. Stock and more.
For a rising portfolio
Learn everything you need to know in 'How to Find the Best Growth Stocks' for FREE from The Successful Investor.
Canadian Growth Stocks: CGI Group, CAE Inc., Fortis Inc. Stock and more.
The tips below for lowering your growth investing risk have long been part of the advice we give you in our investment services and newsletters, including our flagship publication, The Successful Investor.
- Don’t overindulge in aggressive investments.
- Be skeptical of companies that mainly grow through acquisitions.
- Keep stock market trends in perspective, and realize that while the market often anticipates trends, no trend lasts forever.
- Balance your cyclical risk by investing in growth stocks that have freedom from business cycles.
- Keep an eye on a growth stock’s debt.
- Look for growth stocks that have ownership of strong brand names and an impeccable reputation.
- Industry prominence, if not dominance, should be a factor in choosing growth stocks to invest in.
- Dependable investments have the ability to serve all shareholders.
- Hidden value in unseen assets can lead to greater long-term returns.
- Top growth stocks have brand loyalty behind them.
- The best growth stocks should have the ability to profit from secular trends.
Top tech stocks can be great for growth investing—but you need to choose wisely
Tech stocks are companies that are involved in the research, development and production of technology such as electronics or software. With high research and development budgets, tech stocks rarely pay dividends and are often classified as growth stocks.
The best tech stocks have strong growth prospects. The best technology companies can also become so successful that they start paying dividends. Investors should scour a technology stock’s balance sheet for any indication of hidden value like research and development that will pay off in the future.
The success or failure of any tech stock depends on a variety of factors. The company may start out with a promising business plan. But it needs all sorts of things to prosper in the long run: the right employees, a favourable economic and regulatory climate, a favourable competitive environment, favourable research outcomes, adequate financing, perhaps the right merger partner or acquisition—the list is long.
Four ways to increase your growth investing rewards with tech stocks:
- Buy multi-product companies: Focus on tech stocks that have some existing or soon-to-be-released products, and avoid one-hit wonders.
- Diversify: Invest carefully and buy 5 to 10 tech stocks instead of just one. Gains on your winners can help offset any losses you may have.
- Focus on up-and-coming technologies: You need to know how technology is changing to do this.
- Look for earnings: A perpetual money loser will eventually go broke, but if it makes even a little money, it can stay in business and perhaps reap the outsized benefits of a new product.
What is growth investing: It can include aggressive growth stocks, but you don’t want to overindulge in these
Investors should avoid growth stocks that carry too much debt or where there is any doubt about the integrity of insiders. Also, your aggressive growth stock holdings should be kept to a smaller part of your portfolio.
Here are four key ways to cut risk:
- Limit aggressive investments to a smaller component of your overall stock portfolio.
- Cut your risk all the more by taking a conservative approach to your aggressive investing.
- Downplay stocks in the broker/media limelight.
- Look for aggressive investing stocks with hidden value.
Use our three-part Successful Investor approach to make the best growth stock investments
Growth investing, along with value investing, together makes for a well rounded portfolio. At TSI Network, we feel that investors should have a blend of value and growth stocks in their portfolios. We also recommend using our three-part Successful Investor philosophy:
- Invest mainly in well-established companies;
- Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
- Again, downplay or avoid stocks in the broker/media limelight.
What is growth investing in your portfolio?
Are there certain industries you focus on, like new technology, or do you have a greater emphasis on other types of portfolio holdings?