Strategies to grow your portfolio
Growth investing is beating value most investors would like to do to increase their portfolio over time. Any increase in account value can be considered growth, but building a growth portfolio is still hard work.
There are many ways to grow a portfolio, and the best approach for a given investor will depend upon various factors such as their risk tolerance, time horizon, and the amount of principal that can be invested.
Portfolios usually fall somewhere in the spectrum between aggressive, or high-risk portfolios, and conservative, or low-risk portfolios. Conservative investors simply try to protect and maintain the value of a portfolio, while aggressive investors tend to take risks with the expectation that some of those risks will pay off. You can utilize risk assessment tools to help assess your risk tolerance. Understand that your financial goals may change over time, and adjust your portfolio accordingly.
Growth can take place over both the short and long term, but substantial growth in the short term generally carries a much higher degree of risk.
Buying and holding investments is perhaps the simplest strategy for achieving growth, and over time it can also be one of the most effective. Those investors who simply buy stocks or other growth investments and keep them in their portfolios with only minor monitoring are often pleasantly surprised with the results.
Once you've decided what kind of investor you'd like to be and what type of portfolio you want to build, you'll need to determine how you intend to allocate (spread around) your capital. An investor who uses a buy-and-hold strategy is typically not concerned with short-term price movements and technical indicators.
Those who follow the markets or specific investments more closely can beat the buy and hold strategy if they are able to time the markets correctly and consistently buy when prices are low and sell when they are high. This strategy will obviously yield much higher returns than simply holding an investment over time, but it also requires the ability to correctly gauge the markets.
For the average investor who does not have the time to watch the market on a daily basis, it may be better to avoid market timing and focus on other investing strategies more geared for the long-term instead.
This strategy is often combined with the buy and hold approach. Many different types of risk, such as company risk, can be reduced or eliminated through diversification. Numerous studies have proven that asset allocation is one of the key factors in investment return, especially over longer periods of time.
The right combination of stocks, bonds, and cash can allow a portfolio to grow with much less risk and volatility than a portfolio that is invested completely in stocks. Diversification works partly because when one asset class is performing poorly, another is usually doing well.
Investors who want aggressive growth can look to sectors of the economy such as technology, healthcare, construction and small-cap stocks to get above-average returns in exchange for greater risk and volatility. Some of this risk can be offset with longer holding periods and careful investment selection.
No matter how well a stock might be doing at the moment, the price and value of stocks are bound to fluctuate. Diversifying your investment portfolio can help you avoid this pitfall by spreading around your money to a number of stocks