There are two basic ways to invest. One is to choose investments that are currently available at a discount to their usual or intrinsic value. The other is to choose investments that one believes will increase in value over time. The first is called value investing, the second approach is called growth investing. Although stocks in both categories can become more valuable over time growth stocks are typically younger companies with more potential to expand their products and services, sales, and profits.
Momentum vs Growth Investing
Momentum investing or trading says that what is going up is likely to keep going up and what is going down is likely to keep going down. This approach is less concerned with the fundamentals that eventually determine stock price and more with the current investor sentiment that is driving the upward or downward momentum. On the other hand, growth investing is based on the belief that a company will prosper in its market niche, keep increasing profits, and become increasingly valuable over time.
Income vs Growth Investing
Growth stocks tend to be somewhat riskier than stocks from older and more stable companies. Investment advisors typically recommend growth stocks for younger investors because if there is a pullback the younger investor has more time for their investments to return to a growth mode. Older investors tend to focus on income such as dividends as they approach retirement. The approach guarantees cash flow in retirement years and reduces the risk of a market correction diminishing the value of a portfolio.
Dividend Growth Investing Strategy
Mature companies generally have exited their phase of rapid growth. They reliably make money and pay out part of that money to shareholders as dividends. However, not all dividend stocks are done growing. A good way to spot mature companies that continue to grow is to look for dividend growth over the years. Companies that have paid dividends for decades are generally very secure investments and ones that have steadily increased their dividends over time offer the investor a mix of income and growth!
Investing for Dividends vs Capital Growth
Investing for dividends alone is a conservative investment strategy while investing only for capital growth is more aggressive and riskier. So-called “widow and orphan” stocks are those that are extremely stable and pay a reliable dividend. The point is that investing for dividends is appropriate for someone who is not managing their investments and relies totally on those investments for their income. A younger person who manages their own investments and has time on their side can tolerate market ups and downs as they experience greater capital appreciation with growth investments.
Growth Equity Investment Criteria
Growth equity is a way of investing in which an investor seeks to achieve the sorts of returns seen in venture capital or leveraged buyouts while minimizing the risk. This is part of the private equity sector. The focus is on creating value within the various companies within an investment portfolio. Unlike venture capital where investors get in on the ground floor and leveraged buyouts where mature companies are taken over, growth equity focuses on increasing profitability of existing companies. When done well this approach outperforms both venture capital and leveraged buyouts over three, five, and ten-year time frames.
Wealth Growth Investment Management
Picking and managing the best stocks for growth investing takes time and skill. A retail investor with a full time job typically does not have the expertise needed, the time, or the inclination required to do the best job. As such they may choose to pay for wealth growth investment management. Although the investor will hand over most of the work to a professional, they need to pay attention to how their portfolio is doing when compared to a simple approach like buying shares of an ETF that tracks the S&P 500. Professional investment services should provide professional returns and when that is not happening an investor needs to pay attention and go somewhere else!
Growth Investment Group
Giving your money to a growth investment group can be the best approach to growth investing as investment professionals have the experience, skills, and time to devote to picking the best investments and managing your portfolio well. Unfortunately, over most of the years following the financial crisis the S&P 500 outperformed too many managed accounts. The proof is in the pudding, as they say, if you hand off your money to a growth investment group make sure that your returns are better than you could get on your own including the fees paid for managing your money.