The concept of a growth strategy is possibly the most basic one in investing. Here, you use your money to buy assets with the hope that these assets will increase in value over time.
If things work out the way you expect them to, you’ll get more money than you put in when you finally withdraw fully from that investment. This is called Capital Appreciation or Investment Gain.
But it’s not always rainbows and butterflies. If things don’t go your way, your portfolio will suffer. You’ll have less money than you put in. This is called Capital Depreciation or Investment Loss.
Of course, key to achieving success with any investing strategy is buying the right assets – at the right time (trading) or regularly for an extended period of time (investing). In this case, you’ll need to get those with the potential to grow at a pace that lets you reach your money goal.
Keep reading for some tips on choosing investments for a growth strategy.
Consider the characteristics
Some assets are comparatively more likely to grow substantially in value, while others may not see much change in their worth but may provide predictable and consistent income.
Certain investments might not offer either benefit. Instead, these could maintain their price even when times get tough and the economy isn’t doing too well.
Your choice of assets will determine just how well your investing strategy works in the context of your goal. That’s why you should make the effort to learn the characteristics of each asset class.
Stocks are the usual pick for growth, since their value can potentially rise quickly. This means they might grow enough to meet your needs even in the short term, if you pick the right ones.
Of course, going long-term with stock assets can give you a higher chance of reaching your goal. That’s because they’ll have more opportunity to recover from market drops. Plus, more time means more potential growth.
If you’re set on long-term investing for growth, real estate is another popular option. Although this requires a large amount of money, you could see your investment increase by a lot if you pick the right property.
Remember that other asset classes will still have the potential for growth. However, they might not increase as much as you need them to, and so you should do the math first to see if you can consider them.
Remember volatility and liquidity
With high growth potential comes more volatility, since investments that could rise quickly in value could drop instead. That’s something you’ll have to be OK with if you chase fast growth.
This risk, which is commonly experienced with stocks, means that you’ll need to have an Aggressive risk profile to add such assets to your portfolio. This helps keep you from exposing your money to more risk than you’re comfortable with.
While you might also experience growth with investments that match a Moderate or Conservative profile, the amount and speed will probably be lower.
Liquidity, or the ease of turning an investment into cash without losing value, is another consideration. If you anticipate needing to pull your money out quickly, remember that certain asset classes aren’t very liquid.
This is especially true for real estate, given how much it would cost for someone to buy property from you.
Balance your portfolio
When investing for growth, experts recommend that you also include assets which have a lower potential to change in value. You can consider adding fixed-income securities such as bonds, Money Market instruments, investments that have both types of assets, REITs or perhaps, plain cash.
While balancing your portfolio will reduce its earning potential by a bit, this will also help you manage the portfolio’s overall volatility, so the chances of its total value plummeting are less.
If you do stocks, you can also take advantage of technology by choosing an online broker with a stop-loss functionality so you no longer need to monitor your positions every-so-often.
As you get closer to your goal, you may want to redo the portfolio’s asset allocation. You could lessen the stocks component to reduce volatility even more, and move the money to assets which probably won’t go up or down as much.