Growth investments have the potential to increase in value. You can make money by buying at one 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.
2. Growth investing
This involves picking companies that keep all their earningsEarnings For companies, its the money they make and share with their shareholders. For investors, its the money they make from their investments.+ read full definition to investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition in growing their business. The stockStock An investment that gives you part ownership or shares in a company. Often provides voting rights in some business decisions.+ read full definition 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 indexMarket index A measure of price changes in a stock market. Based on the performance of selected stocks, bonds or commodities. Examples: Dow Jones Industrial Average, S&P/TSX Composite Index, Standard and Poor’s 500.+ read full definition. 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 hope a stock can perform well even in if its industry or the economy is not doing well.
Growth investments have the potential to increase in value. But they can also lose value, which makes them risky.