What Is Growth Investing ?
Growth investing refers to the stock-picking strategy that involves buying and holding stocks of companies having greater potential to grow at an above-average rate, The main objective of this investment strategy is to enjoy the benefit when stock's prices increases over time.
Key Characteristics Of Growth Investing
- Investors select the companies having higher growth potential
- Gives emphasize on future profitability and growth rather than current performance
- There is a possibility of high volatility
- Companies rarely pau dividends because most of the profits are reinvested for expansion and future growth
Pros Of Growth Investing
The main benefits or advantages of growth investing strategy can be described as follows:
1. Exponential Returns Potential
One of the major advantages of growth investing is high return potential. There is a possibility of massive capital gains over the long term.
2. Benefits Of Compounding
Companies reinvest the earnings into the operation for growth and further expansion purpose. So, investors can make substantial earnings in the future.
3. Ideal For
Growth investing is suitable or ideal for those who can wait for long time, who can handle risk and who do not expect dividend income.
4. Innovation And Future Trends
It allows investors to participate in emerging trends and innovation such as renewable energy, artificial intelligence, e-commerce etc.
Cons Of Growth Investing
The major drawbacks or disadvantages of growth investing are as follows:
1. Extreme Volatility
Growth investment is risky for short-term traders because stock prices can fluctuate dramatically during market downturns.
2. Risk Of Capital Loss
If investor selects the wrong company , it is like betting on wrong horse, that may lead to permanent loss of investment. Therefore, there is a risk of capital loss
Also Read
Pros and cons of value investing
Value investing vs growth investing
3. Not Ideal For
Growth strategy is not ideal for those people who cannot tolerate volatility and risk and do not have long-term outlook.
4. No Short Term Return
As we know that earnings are reinvested for further expansion and innovation, there is no short-term return or dividends investors. Therefore, it is not suitable for those traders who seek regular income.
