Let's face it: Investing in dividend-paying income stocks
isn't the most exciting way for young investors to see their
portfolios grow. Although study after study extolls the benefits
of such an approach, some people like a bit of excitement in
their retirement plan.
That's where growth funds come in. And far from being
unreliable and money-losing compared to dividend payers, growth
funds can help supercharge your returns and shorten the length of
time between now and your eventual retirement date.
That is, of course, if you know how to select growth funds
that meet your needs.
Growth funds can help you build your retirement portfolio.
What are growth funds?
There are lots of definitions for "growth funds," but in the
broadest sense, any growth fund usually has the following
- An investment in stocks, as opposed to bonds or CDs.
- A goal of accumulating returns via stock price appreciation
instead of dividend income.
- Investment in companies that are growing both earnings and
revenue at a rate well above the broader market's average.
- Volatility that exaggerates the market's moves -- showing
bigger gains during boom times and greater losses during bust
What is the history of growth funds?
The actual birth date of mutual funds in America is a little
hazy, but it was in 1928 that the Wellington Fund launched funds
with exposure to both stocks and bonds.
The growth of mutual funds was slow following the Great
Depression, and it wasn't until the 1960s that mutual funds
focused specifically on growth began to surface. Following the
stock market's 1,400% surge between 1980 and 2000, growth funds
became a popular investment tool for everyday investors.
According to Kiplinger's, the following three large-cap growth
funds were the most successful over the past 20 years.
Maris & Power Growth
ClearBridge Aggressive Growth
Source: Kiplinger's. Data current as of July 31, 2014.
It should be noted, however, that these represent the cream of
the crop; not every growth fund has performed this well. And many
funds didn't even last that full 20 years and therefore aren't
How many growth funds are there?
U.S. News & World Report
estimated that there were 7,238 mutual funds in existence.
Focusing specifically on growth, the Investment Company
Institute said that by the end of 2013, there were
1,329 different funds focused on "capital appreciation." A
was invested in those funds -- up 125% from just 2002.
The most popular of these are the growth-focused
exchange-traded funds (ETFs) offered by iShares. Investors can
choose from a number of different types of growth ETFs, including
ones that track the S&P 500, the Russell 1000, and the
These funds have ultra-low fees, usually with an expense ratio
below 0.3%, which helps explain their popularity.
Why invest in growth funds?
Growth funds play an important role in any well-balanced
portfolio. They invest in companies that are shaping the future
of our society -- and turning a solid profit in the process. That
includes names like
While income funds that focus on dividends will provide
stability through both boom and bust cycles, investors with a
long-term investing horizon can count on growth funds to provide
the kind of kick that helps you reach your retirement goals.
If you're not investing in a growth ETF and you decide to go
the mutual fund route, the two most important factors to consider
are fees and management. You should shoot for an expense ratio
that's lower than 1% -- and the lower the better. And it's
important to investigate the team that's deciding where to invest
your money. Though a certain fund may have been around forever,
its leader may be in his or her first year on the job. You want
someone who knows what they're doing and has a proven track
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Growth Funds: Investing Essentials
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