Why should I invest in growth stocks?
Since Fama and French developed this idea, investors have argued over which investing style delivers the best returns. The truth is, they both do, but at different times in market cycles.
Between January 1970 and February 2007, value stocks outperformed growth by 7.1% annually, Gambarini’s data shows. Then, growth stocks outperformed value for the next 13 or so years, between March 2007 and September 2020.
Many experts believe chasing style by timing the market is a losing proposition. A better approach is to include the best stocks from both growth and value in your portfolio, creating a more blended and balanced composition.
While it’s beneficial to create a portfolio that balances both investing styles, there are times when you’ll want to amp up your risk/reward profile, and finding the best growth stocks is an excellent way to do that.
In his feature, The 30 Best Stocks of the Past 30 Years, Dan Burrows, senior investing writer at Kiplinger, highlights a study that details the performance of 64,000 global stocks over 30 years between January 1990 and December 2020. The data, courtesy of Hendrik Bessembinder, a finance professor at the W.P. Carey School of Business at Arizona State University, found that over 50% of these stocks underperformed risk-free one-month U.S. Treasury bills.
Data points like this might make you think twice about investing in growth stocks. Don’t give into the fear. Growth stocks can deliver alpha for your portfolio over the long haul when used responsibly. Indeed, the IVW growth ETF mentioned earlier has averaged an annual total return (price change + dividends) of 16.7% over the past 15 years, beating the S&P 500’s total return of 15.8%.
Care to guess the top-performing stock over 30 years?
Apple (AAPL) with an annualized dollar-weighted return of 23.5%, creating $2.67 trillion of wealth for investors. If you invested $10,000 in 1990, it was worth $5.62 million in December 2020. Risk is relative to reward.
So, how do you find growth stocks like Apple? Read on, and we’ll show you.
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