Business
Growth Investing Explained
Discover growth investing, an investment strategy focused on companies with high growth potential for significant capital appreciation over time.
What is it?
Growth investing is a strategy focused on buying stocks in companies expected to grow at an above-average rate. The primary goal is capital appreciation—the increase in the stock's price—rather than receiving dividends. These companies often operate in innovative sectors like technology and biotechnology, reinvesting their profits back into the business to fuel expansion and research. Investors bet on the company's future potential to deliver substantial returns as it scales, believing its current value is just the beginning of its growth story.
Why is it trending?
The strategy remains popular due to the phenomenal success of tech giants that have generated massive wealth for shareholders. In low-interest-rate environments, investors often turn to growth stocks in search of higher returns than traditional assets can offer. Furthermore, the rise of accessible, low-cost trading apps has empowered a new generation of retail investors to easily participate in the market. The constant media buzz around disruptive technologies and "the next big thing" keeps the search for high-growth companies a perpetual trend.
How does it affect people?
For investors, growth investing offers the potential for significant long-term wealth creation, accelerating financial goals like retirement. However, this potential comes with elevated risk and volatility. Growth stocks can experience sharp price drops if a company fails to meet its ambitious expectations or if market sentiment sours. This means the strategy is better suited for those with a higher risk tolerance and a long investment horizon, as it requires the fortitude to withstand market swings without making rash decisions.