Enhance the portfolio performance with accelerating Growth companies
Investing in Growth Sectors
An investment advisor may be able to help you grow your portfolio’s value, especially if your interests don’t include the markets and investing. However, be aware that not all investment advisors are successful. Do your homework first by researching potential advisors’ backgrounds and experience. And always ask for an advisor’s performance results.
Dollar-Cost Averaging
Dollar-cost averaging (DCA) is a common investment strategy that is often used with mutual funds. Using DCA, an investor allocates a specific dollar amount to periodically purchase shares of one or more specific funds.
Because a fund’s net asset value (NAV) will vary from one purchase period to the next, an investor can lower the overall cost basis of the shares as fewer shares are purchased when the fund price is higher and more shares are bought when the price declines. DCA thus allows the investor to reap a greater gain from the fund over time.
Another advantage of DCA is that investors don’t need to worry about buying at the top or bottom of the market or trying to time their transactions. They simply commit to investing a sum of money regularly. In this way, they grow the value of their holdings via an ever-larger number of shares and position themselves to benefit from the capital appreciation of those shares.
The ability to create its own market is the strategic, the dominating, and the single most distinguishing characteristic of a true growth company.
— Peter Bernstein
Dogs of the Dow
Michael O’Higgins outlines this simple strategy in his book, “Beating the Dow.” The Dogs of the Dow is a stock-picking strategy that consists of selecting the Dow Jones Industrial Average (DJIA) stocks with the highest dividend yields. Those who purchase these stocks at the beginning of the year and then adjust their portfolios annually have usually beaten the return of the DJIA index over time (although not every year).2
Michael B. O’Higgins and John Downes. “Beating the Dow Completely Revised and Updated: A High-Return, Low-Risk Method for Investing in the Dow Jones Industrial Stocks With as Little as $5,000.” HarperCollins, 2011.
There are several unit investment trusts (UIT) and exchange-traded funds (ETFs) that follow this strategy. So, investors who like the idea but don’t want to do their own research can purchase these stocks quickly and easily with a single investment.
CAN SLIM
This method of picking winning stocks based on specific growth characteristics that position them for major price moves upward was developed by William O’Neil, founder of Investor’s Business Daily. His overall idea was that a sound investment strategy based on proven rules was the key to successful long-term growth investing.
His methodology is quantified by the acronym CAN SLIM.3 It stands for:
C: The (C)urrent quarterly earnings per share (EPS) of a company need to be at least 18% to 20% higher than they were the year before.
A: The (A)nnual earnings per share needs to reflect material growth for at least the previous five years.
N: The company needs to have something (N)ew going on, such as a new product, a change of management, etc.
S: The company should be trying to repurchase outstanding (S)hares, which is often done when companies expect high future profits.
L: The company needs to be a (L)eader in its category instead of a laggard.
I: The company should have some, but not too many, (I)nstitutional sponsors.
M: The investor should understand how the overall (M)arket affects the company’s stock and when it can best be bought and sold.
Because it involves time and effort on an ongoing basis, CAN SLIM isn’t an investing approach for everyone.
How Can You Make Your Portfolio Grow Faster?
Ways to make your portfolio grow faster include choosing stocks over bonds, investing in small-cap companies, investing in low-fee funds, diversifying your portfolio, and rebalancing your portfolio regularly.
The 80/20 Rule of an Investment Portfolio?
The 80/20 rule of an investment portfolio states that 20% of a portfolio’s holdings should constitute 80% of its returns and similarly, 20% of holdings could contribute to 80% of losses.
Is a 70/30 Portfolio Aggressive?
A 70/30 portfolio consists of 70% stocks and 30% bonds. It is more aggressive than a portfolio allocation of 60% stocks and 40% bonds because it consists of more stocks, which are considered to be higher risk than bonds.
Investors who want aggressive growth can look to sectors of the economy like technology, healthcare, construction, and small-cap stocks to get above-average returns in exchange for greater risk and volatility. Some of this risk can be offset with longer holding periods and careful investment selection.
References:
- William J. O’Neil. “How to Make Money in Stocks: A Winning System in Good Times and Bad, Fourth Edition.” McGraw-Hill Education, 2009.
- Michael B. O’Higgins and John Downes. “Beating the Dow Completely Revised and Updated: A High-Return, Low-Risk Method for Investing in the Dow Jones Industrial Stocks with as Little as $5,000.” HarperCollins, 2011.