Growth investments have the potential to increase in value. You can make money by buying at 1 price and selling at a higher price in the future. But these investments can also lose value, which makes them risky. Growth investments include equity mutual funds, ETFs and stocks.
When you’re investing for growth, you might want to consider 1 of the following approaches to choosing investments.
1. Value investing
This involves picking high-quality companies that seem to be undervalued because they cost less than similar companies in the same industry.
Learn more about value investing with these 3 videos:
2. Growth investing
This involves picking companies that keep all their earnings to invest in growing their business. The stock may be expensive today, but growth investors believe that the company’s future growth will help the stock continue to go up in price.
3. Index investing
This means investing in a group of stocks that behave like a particular market index. You can make your own picks, or simply buy units of an index mutual fund or index ETF.
4. Top-down investing
With this approach, investors first look at the overall economy to find out where there are strengths and opportunities. Then they pick the industries or sectors that will most likely perform well, choosing stocks with the greatest growth potential within those industries or sectors.
5. Bottom-up investing
This involves using financial ratios and other indicators to pick stocks based on a company’s basic strengths, including its management team. Bottom-up investors believe a stock can perform well even in if its industry or the economy is not doing well.