What is Growth Investing and How Does it Work?
What is growth investing?
Getting started as a growth investor
Understanding the price-to-earnings ratio (P/E ratio)
- Can offer big returns. One of the biggest benefits of a growth investment strategy is the fact that it can earn you some serious money. When you consider that growth stocks consistently outperform value stocks and traditional interest rates if you have the money to get into growth investing it can really pay off.
- Pairs well with other strategies. It’s worth noting that you don’t need to go all-in on growth investing in order for it to make you money. As such, many investors choose to allocate a portion of their portfolio to growth investing, a portion to value investing, and a portion to much more stable investment vehicles like bonds. This allows you to diversify your portfolio without sacrificing some of the valuable earning potentials that comes with taking a risk on certain growth stocks.
- Expensive to get into. Cost is one of the biggest cons of growth investing, since many companies are already trading at high values. Buying one share of Amazon (AMZN) will cost you over $3,000 at the time of this writing. While that money is likely to offer a nice return over the next few years, that kind of cost can be prohibitive to investors just starting out.
- Bubbles and volatility. Perhaps more than any other type of investment, growth stocks are more likely to swing in price wildly and run the risk of winding up in bubbles. While a bubble could be good news for you if you got in early, it can be difficult to read through the noise and make an informed decision if you’re not confident in a company’s potential for growth. As such, growth investing isn’t for the faint of heart and should only be a portion of your investment strategy.
The bottom line
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