What are growth stocks mutual funds?
Growth stocks mutual funds are a type of mutual fund where the funds are invested in stocks of companies that are expected to grow faster than the overall market. Investors who are willing to take high risks and get high returns, choose growth stocks as it’s a great tool to grow money over time. Tech companies are a good example of growth stock mutual funds.
How do growth stock mutual funds work?
Investments in growth stock mutual funds give a higher return than any other mutual funds over a long period of time. Let’s take the example of Facebook. In 2011 the valuation of the company was approximately $1 billion, and by 2012 it reached around $100 billion.
In simple words, companies that have a high potential for development are identified in the market by investors, and their shares have a high bid value. If Facebook continues to make $1 billion every year then, it would have taken 100 years to pay back the invested amount to the investor.
But Facebook’s growth was much faster, so by the year, 2015 Facebook tripled its valuation. By 2017, Facebook became one of the largest growth stocks in the market and by 2018, Facebook reached the $500 billion mark. But by the second half of 2018, its valuation went down from $600 billion to $400 billion. And by the first quarter of 2020, its valuation again fell to $450 billion. Now, by 2021, its valuation is more than $1000 billion.
Therefore, growth stock investors are looking for companies like Facebook where they have the opportunity to grow faster than the current market. We have seen how fast Facebook has grown in the past decade, and the investors have enjoyed a good return from it.
A company’s growth stock rate is good only if the company’s corporations, consumers, and investors are performing well together. But, certain companies reinvest the profit rather than paying dividends. Such companies are looking to grow their business even more. One such example is Amazon.
Consumer Cyclical Stocks
Consumer cyclical stocks are a type of growth stock mutual funds. These are the stocks of companies that are considered as non-essential stocks whose value fluctuate as per the business cycle of the economy. One great example of such companies is the entertainment industry. Therefore, a cyclical stock moves up or down depending upon the upward or downward movement of the economy. Investors buy cyclical stocks at lower prices and sell them at higher prices. Consumer cyclical stocks are also known as consumer discretionary stocks.
Growth stocks can have high fluctuations in a short period, but for a longer period of time, they are good for aggressive investors. Therefore, these stocks are best for young investors because they can take high risks for a long period of time. But always remember that investing in a growth stock mutual fund is risky because the stock price may go down in a bearish market.
Key Points of growth shocks mutual funds
- Growth stock mutual funds have high risk and high returns.
- These companies require long term investments.
- Technology companies are good examples of growth stock mutual funds.
- Consumer cyclical stocks is a type of growth stock mutual fund that provide products that are not necessary.
- Netflix is a good example of consumer cyclical stocks.