3 Things to Avoid When Investing for Growth
Investing for growth can be extremely profitable since above-average growth rates bring excellent returns. The general idea behind growth investing is to select stocks that have the potential to grow in value.
Provided you choose your industries and companies with an eye toward rapidly growing companies while avoiding certain key mistakes, you can stand to make a good return on your investment (ROI).
1. When investing for growth, the following can seriously hurt your earnings potential
- Becoming too attached to a stock. If you’ve ever put a decent amount of time and energy into researching a company before finally purchasing its stock, you’ve probably felt a level of personal involvement in the business of which you were then part owner. This is natural, but you’ll still want to know when to sell.
- Sell when you need the money. When you have more pressing financial concerns that need to be dealt with, it’s best to liquidate your holdings to prevent these financial issues from snowballing.
- Sell when the price is higher than the market value. When a stock reaches at least 20% above its fair trade value, this is generally considered a good time to sell.
- You may also feel more comfortable establishing a range at which you’ll sell your stock.
- Sell when a better investment opportunity presents itself. If you’re feeling hesitant to relocate your money to a different stock, ensure you’re making an informed decision rather than feeling reluctance because of your familiarity with the stock you currently own.
Consider the fundamentals. Understanding your company’s products and services and their intrinsic value can help guide your selling decisions. If a competitor brings a higher quality to the market, it may be time to jump ship.
2. Not diversifying your portfolio.
Many growth investors look for young companies that are on the cutting edge of technology or are reinventing an already-existing product. It can be easy to get excited and invest in one promising company. However, avoiding putting all of your eggs in one basket is a smarter strategy.
Having more stocks isn’t always the answer. Sometimes having a smaller quantity, as long as each stock is in an entirely separate industry, can provide more security as opposed to spreading yourself too thin.
3. Trying to time the market.
Avoid momentum trading – where you invest in stocks that have just recently gone up in value by a small margin and then try to sell them before the stock drops again.
Trying to time the market on a day-to-day basis when investing for growth can put your portfolio at unnecessary risk.
If you’ve been thinking about growth investing, now is a great time to start looking into green energy and metal markets. This will give your portfolio a nice balance between industries that are on the frontier of technology and those that have a consistent track record with ongoing, steady growth potential.
Keeping these common pitfalls in mind when developing your investment strategy will help minimize your losses and increase your overall earnings. It’s important to know when to sell, not to get too invested in one company or industry, and to avoid reacting to short-term changes in the market value of the stocks in your portfolio.