As a teen investing in the stock market, our strategy of investing can be different from our grandparents and even our parents. We have more time and compounding potential waiting for us. Unlike our grandparents, we can take more risks. If you are looking for a little more risk with the possibility for above-average returns, then growth investing might be a fitting strategy.
Growth investing is an investing strategy that focuses on capital appreciation and finding younger companies that are expected to have above-average earnings in the future. This style of investing is like gardening. You find some seeds to plant. You invest time and money into them in hopes they will grow to stand above the other plants in your beautiful garden.
Starting your own garden does come with risks, especially if you are fostering younger plants. There are a variety of things that can go wrong. The same goes for growth investing. Since these companies do not have a historical track record, their earnings are relatively uncertain and are not guaranteed to perform.
Stocks that may fit into the growth investing strategy are small-cap stocks or sometimes tech companies since they are often priced higher than their earnings value. Small-cap would indicate to an investor that the company is still relatively small but may have the potential to produce superior returns in the future.
Now, to begin planting seeds to invest in, investors evaluate several factors to determine if a plant has the potential to grow above the rest.
And that’s how you begin building a garden using growth investing. Now that we are building some momentum, let’s dive into momentum investing.