Bob Brinker's Marketimer

  Friday November 24, 2017

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WHAT KINDS OF INVESTMENTS ARE INCLUDED IN GROWTH FUNDS?

The managers of growth funds invest in the stocks of companies that show the greatest potential for growth. They choose these because the stocks of high-performing companies are in demand and are likely to increase in price.

Some managers choose stocks that they believe are selling for less than they are worth. These managers believe that such stocks (called value stocks) will eventually become popular and thus rise in value.

Other managers choose stocks by studying a company's profits and predicting whether these profits will continue. Fund managers also look for stocks they think will grow faster than the inflation rate. This makes growth funds popular with investors who are looking for a hedge against inflation.

Growth funds may also invest in small, rapidly growing companies called small-cap companies ("cap" refers to capitalization, which is the amount of money invested in the company. Small-cap firms have relatively small amounts of invested money).

Because less of the company's profits must go to repay investors, mutual fund managers believe these companies are likely to earn substantial profits in the near future. Mid-caps are also popular choices. Large-cap companies are less popular because they grow less rapidly. Nevertheless, many growth funds choose them because they perform well while being generally less volatile than small- and mid-cap stocks.

Some examples of growth funds are next in our tutorial.




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