Even during recent market turbulence, it appears that growth stocks are still the investment of choice for many. Here’s what people are adding to their portfolios and some alternatives you should consider to boost your investing performance.
What is considered a growth stock?
The name probably gives it away, but a growth stock is a share that is expected to grow and outpace the market average in terms of price.
The basic idea behind growth stocks is that you’ll make money through capital appreciation. So the amount you initially invested appreciates and the value of your equity increases.
Why are investors using growth stocks?
It’s somewhat surprising that this category remains a top choice for investors. There’s a lot going on in markets right now that’s wobbling growth valuations, including:
Ben Laidler, global markets strategist at eToro, explains the current situation: “We’ve seen the valuations of big tech stocks fall back in the past month or so, especially since the Federal Reserve indicated that it was prepared to hike rates once next year and as much as three times in 2023.
“When rates are low, investors are typically prepared to pay elevated premiums for growth stocks in exchange for large future potential earnings. However, in a rising interest rate environment, that risk-return trade-off may become less attractive for some.
“The fact that growth – and in particular big tech – stocks increasingly dominate portfolios suggests two things: firstly, that investors believe interest rate rises will be slow and steady; and, secondly, that they believe there is still plenty of mileage in growth stock earnings.”
What are the most popular growth stocks?
According to data from eToro, this category of shares accounted for nine out of ten of the most-held stocks on the platform. Their top ten investments at the end of Q3 looked like this:
Tesla Inc. (TSLA)
Nio Inc. (NIO)
Apple Inc. (AAPL)
Amazon.com, Inc (AMZN)
GameStop Corp. (GME)
Alibaba Group Holding Ltd. (BABA)
Microsoft Corp. (MSFT)
Alphabet Inc. (GOOGL)
Palantir Technologies Inc. (PLTR)
Coinbase Global Inc. (COIN)
What alternatives to growth stocks are there?
Growth stocks can play an important part in your portfolio. However, it’s really important to make sure your investments are diversified.
These platforms will build and manage a diversified portfolio tailored to your needs. This can be a great way to have diversification without the headache of arranging everything yourself.
During periods of economic uncertainty, growth stocks are the types of shares to be hit first and hit hardest.
This may not be a worry during short-term dips. But if there’s an extended bear market, it’s important you have other assets that will protect your wealth or make you money.
Just remember that there are no guarantees with investing and you may get out less than you put in. But making sure you’re not putting all your money into one type of stock is a good way to try and minimise any potential losses.
The post Growth stocks still dominating investor portfolios – here are the top picks appeared first on The Motley Fool UK.
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