Investors often pursue many different goals, but earning money over time is certainly among their top priorities. To achieve the greatest return on your investments, you’ll need to build and maintain a growth portfolio, but how do you create a growth portfolio in the first place, and how do you find the right balance between growth and risk?
What Is a Growth Portfolio?
First and foremost, a growth portfolio is a collection of stocks designed with the sole intent of generating revenue over time.
A growth portfolio can contain individual stocks that you select yourself, though it’s often easier to purchase growth funds, and in many cases, growth portfolios can be classified as growth funds. These include mutual funds or exchange-traded funds (ETFs) that contain high-value companies.
Though growth funds are among the most common types of mutual funds and ETFs, they are also the most volatile. Most will feature high-risk, high-reward stocks, making them ideal for investors who have a penchant for taking risks or already have a long-term investment strategy in place.
Types of Growth Funds
Growth funds are usually classified into one of two categories: market capitalization and geography.
Market Capitalization
Most commonly, growth funds are classified according to company size, broken down as follows:
- Small-Cap Stocks: $300 million to $2 billion
- Mid-Cap Stocks: $2 to $10 billion
- Large-Cap Stocks: Over $10 billion
Therefore, for example, a large-cap mutual fund would often be a popular choice among growth fund options.
Geography
Growth funds may be further characterized based on geographic locations. Foreign growth funds can be valuable assets to investors looking to tap into global markets, given that these markets will not be influenced by the same economic, social, or political forces as the domestic stock market. These same reasons may also make foreign growth funds a worthy addition for those looking to add diversity to their broader investment strategy.
Examples of Growth Funds
It may help to look at a few types of existing growth funds to learn what they may add to your investment portfolio.
Growth Fund of America (AGTHX)
The Growth Fund of America (AGTHX) is a large-cap mutual fund that contains more than $250 billion in assets under management. Its largest holding is currently Tesla, which comprises 7.1% of its total assets.
From 2012 to 2022, the fund experienced 14.28% growth, even amidst recent volatility. It is that long-standing strength that makes the AGTHX rank among the top-performing growth funds currently available.
American Funds Growth Portfolio (GWPAX)
The American Funds Growth Portfolio (GWPAX) is a growth fund that contains a variety of American Funds in industries ranging from technology to healthcare. Between 2012 and 2022, the large-cap fund acquired over $6 billion in assets under management.
On the one hand, GWPAX is one of the more affordable options right now for building your growth portfolio. On the other, however, it hasn’t experienced much volatility, which means there may be less risk involved but also less potential for reward.
Morgan Stanley Multi Cap Growth A (CPOAX)
One of the top-performing large-cap growth funds is the Morgan Stanley Multi Cap Growth A (CPOAX). From 2012 to 2022, CPOAX saw an annualized return of 23.3%.
How to Build a Growth Portfolio
How do you create a growth portfolio? The most direct way is to populate your existing portfolio with growth funds like those listed above. After all, growth funds already contain a substantial number of high-performing stocks, as well as sufficient diversity to mitigate your risk.
That being said, though, there may be times in which investors — perhaps you — prefer to build a growth portfolio on their own. In that case, here’s what you can do to build and maintain your growth portfolio yourself:
1. Assess Your Risk Tolerance
Any type of growth portfolio will require a balance of risk and reward. If you want the greatest return on your investment, you’ll typically have to incur the greatest risk. Nonetheless, never invest money you’re not prepared to lose. Talk your investment plan over with your family and anyone who may depend on you before you make a commitment.
Generally speaking, younger investors can endure greater risks, given that they have nearly an entire lifetime to make adjustments if their portfolio underperforms.
2. Research Carefully
Once you decide on the level of risk you’re most comfortable with, you can start researching stock options. Again, the simplest method to build a portfolio is to purchase growth funds, which will already give you strong diversification and a historic record of returns.
Still, you can also select individual stocks to add to your portfolio, but doing so can be a bit risky, not to mention time-consuming, because a solid portfolio should contain roughly 20 to 25 different stocks in order to balance the risks and rewards.
3. Focus on Large-Cap Stocks
Ideally, for a growth portfolio, you’ll want to focus primarily on large-cap stocks with solid financial track records. Most large-cap stocks represent large, stable corporations that have stood the test of time, which can also help you mitigate risk.
Adding onto that, don’t worry about dividend stocks. Though some large-cap companies do offer this small benefit, it’s not necessarily a relevant indicator of their ability to flourish and grow. Instead, just set your priorities on companies’ reputations and numbers, and seek out stock picks with the greatest potential for future growth.
4. Diversify Your Portfolio
Every investor must balance the risks and rewards of investing, and diversification — that is, not purchasing stocks from the same industry — is the key to accomplishing that.
For instance, if you purchase stocks from only the tech sector, you could find yourself stranded if the industry takes a dive, but if you balance your stock picks across multiple industries, such as tech, telecommunications, healthcare, and finance, you’ll stand a greater chance at seeing growth across at least one of these markets.
4. Monitor and Make Adjustments
Keeping track of your investments, while one of the most important things you can do, can also be the most fun. Once you establish your growth portfolio, make sure to check its performance on a regular basis. Ideally, you’ll see sustained periods of growth that show a strong return on your investment.
Of course, it’s not always an ideal world, so if you start to see a stock start to flounder, you might consider jettisoning that pick and selecting another stock option. Doing so is tricky, though, because you don’t want to make any knee-jerk reactions. Regardless, if a company is noticeably underperforming for a prolonged period, it may be time to move on.
5. Focus on Long-Term Gains
Despite the name, growth funds won’t necessarily offer the promise of meteoric returns, but with the right strategy, you can develop a growth portfolio that yields sustainable returns over the course of years, which makes for a helpful strategy for retirement planning or for achieving other long-term goals.
Additionally, by keeping your eyes fixed on these long-term rewards, you’ll be less likely to panic over the day-to-day changes in your portfolio due to market volatility, and you’ll also have the opportunity to continue investing in your growth portfolio. You can continue to add shares of stock or even add new stocks altogether for maximum growth or to rebalance.
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