Finance

What Are Growth Stock Mutual Funds and How to Leverage Them to your Advantage?

What Are Growth Stock Mutual Funds and How to Leverage Them to your Advantage?

The key to increasing your wealth often involves putting your money to work and finding opportunities that allow you the chance to enjoy reasonable growth, which often involves investing in the stock market.

One of your options is to look at investing in growth stock mutual funds, which aims to do what the description suggests, by pinpointing stocks that have the potential to follow an upward price curve that is at a faster rate than other stocks.

Here is a look at what growth stock mutual funds are and how to leverage them.

Looking to the future

A fundamental aspect of growth stock mutual funds is about fund managers using their skills to identify companies who have the most potential to deliver excellent future earnings in the future.

Sometimes, the price valuation can appear to have factored in this potential, but some fund managers have the requisite skills to be able to see that the growth expectation should be higher than the current price and earnings data suggest.

A classic example of a growth stock would be a technology company with the potential to increase sales and profitability as their product or service becomes more mainstream.

Even though Facebook, for instance, is now a major stock it has still managed to outperform its valuation and deliver exceptional growth in stock value, despite some investors believing that the price offered limited upside because the price had already factored in its growth.

What you are looking for with a growth stock mutual fund is to buy into companies that will continue to grow at a faster rate than anticipated by their current price.

Taking a long-term view

It is not just technology stocks that are viewed as growth stocks and another prime example of a typical growth stock would be the so-called consumer cyclical stocks.

These are stocks that tend to have periods of growth where they are in favor and the stock price increases, followed by a period where the price will be subject to volatility and fluctuation.

Spotting when to buy into these stocks is a skill, but the rewards are there for investors who are prepared to leave their cash alone for a decade or more to ride out the fluctuations and enjoy, hopefully, overall growth in the price over time.

Right for you?

Investing in growth stock mutual funds is not for everyone and would not probably be a great strategy for your retirement years, for example, where time may not be on your side to ride out the potential dips in values.

However, if you like the idea of finding the value and enjoying the growth of the underlying stock you are invested in it may well be a strategy that you embrace.

Bear in mind that growth stocks tend to pay little or no dividends, so you are relying on the stock value rising to achieve your returns over a period of time.

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