Capital Growth Strategy

What Is a Capital Growth Strategy?

A capital growth strategy tries to expand capital appreciation of an investment portfolio over the long term through a asset allocation geared to securities with high expected returns.

Investors who utilize a capital growth strategy search out companies and investments with the possibility to develop at a higher rate compared to the market or the industry. Capital growth investors will trade a certain amount of risk to possibly procure higher returns.

How a Capital Growth Strategy Works

Portfolios with a capital growth strategy comprise for the most part of equities, otherwise called stocks. The specific proportion of equities to the total portfolio will fluctuate as per the individual investor's investment horizon, financial imperatives, investment goals, and risk tolerance.

By and large, a capital growth portfolio will contain roughly 65% to 70% equities, 20% to 25% fixed-income securities, and the remainder in cash or money market securities. While seeking high returns, this blend still to some degree safeguards the investor against a serious loss in portfolio value in the event that the higher-risk equity portion of the portfolio dives in.

Numerous capital growth investors will choose a moderate growth objective, while others will opt for a high growth objective. Moderate growth investors could purchase stocks of laid out blue-chip companies. Investors with a high growth objective will invest in additional speculative assets, for example, growth stocks from companies that have next to zero current profits yet have the potential for high future gains.

Exceptionally aggressive portfolio strategies additionally aim to augment capital growth, however these strategies are of impressively higher risk, in some cases comprising entirely of equities.

Special Considerations

A capital growth strategy is suitable for most investors with a long time horizon, commonly 10 years or more. A common goal of a capital growth strategy is to put something aside for retirement while at the same time funding other long-term objectives, for example, accommodating a youngster's college education or building a legacy for people in the future. Long-term investors can face the higher risk challenges equities when they have additional opportunity to recuperate from sharp losses.

Asset allocation by age is an important investment strategy that spotlights on changing an investor's asset allocation in view of the various stages of life. Investors in their 20s and 30s utilize an unexpected strategy in comparison to those in their 40s and 50s. In like manner, investors approaching retirement or currently in retirement have various strategies and objectives.

As a general rule, more youthful investors can tolerate more risk and would be more probable candidates for a strategy with a high growth objective compared to investors who are more seasoned and are searching for capital preservation.

Building a Capital Growth Strategy

Investors have a huge number of decisions while building an allocation that seeks after capital growth. More sophisticated investors might decide to develop a portfolio of individual stocks that can be balanced with fixed income and cash or through hedging strategies that leverage options and futures.

Investors without the time or information to manage a portfolio of individual securities can browse packaged products including mutual funds and exchange traded funds (ETFs). These are accessible in handfuls on the off chance that not many various categories. For capital growth, an investor would be very much possessed funds or ETFs that furnish diversified exposure to stocks with value and growth qualities as well as various market capitalizations and geologies.

For a one-size-fits-all approach, investors can choose a target-date fund that holds an allocation of stocks, bonds, and cash that turns out to be more conservative as the target date approaches. Another pre-set allocation decision is a lifestyle fund that keeps a static allocation in light of a decision of risk levels. For capital growth, an investor would pick a moderate or aggressive allocation.

Highlights

• A portfolio that spotlights on capital growth will contain roughly 65% to 70% equities, 20% to 25% fixed-income assets, and the balance in money market securities or cash.
• Investors who opt for a capital growth strategy need to increase their gains by choosing investments that can possibly become long term at a higher rate compared to the market.
• Capital growth investors can improve on the investment interaction by browsing packaged products including mutual funds and exchange traded funds (ETFs) that emphasis on capital appreciation.
• Sophisticated capital growth investors could build a portfolio of individual stocks balanced with fixed-income assets or hedging strategies that incorporate options and futures.
• Target-date funds and lifestyle funds are different options that incorporate capital growth strategies in view of the investor's age and risk tolerance.