Growth Funds: Investing Essentials

Investing in growth funds can be exciting and rewarding -- if you know what to look for.

Aug 15, 2014 at 11:22AM

Let's face it: Investing in dividend-paying income stocks isn't the most exciting way for young investors to see their portfolios grow. Although study after study extolls the benefits of such an approach, some people like a bit of excitement in their retirement plan.

That's where growth funds come in. And far from being unreliable and money-losing compared to dividend payers, growth funds can help supercharge your returns and shorten the length of time between now and your eventual retirement date.

That is, of course, if you know how to select growth funds that meet your needs.

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Growth funds can help you build your retirement portfolio. Source: Images Money via Flickr.

What are growth funds?

There are lots of definitions for "growth funds," but in the broadest sense, any growth fund usually has the following characteristics:

  • An investment in stocks, as opposed to bonds or CDs.
  • A goal of accumulating returns via stock price appreciation instead of dividend income.
  • Investment in companies that are growing both earnings and revenue at a rate well above the broader market's average.
  • Volatility that exaggerates the market's moves -- showing bigger gains during boom times and greater losses during bust times.

What is the history of growth funds?

The actual birth date of mutual funds in America is a little hazy, but it was in 1928 that the Wellington Fund launched funds with exposure to both stocks and bonds.

The growth of mutual funds was slow following the Great Depression, and it wasn't until the 1960s that mutual funds focused specifically on growth began to surface. Following the stock market's 1,400% surge between 1980 and 2000, growth funds became a popular investment tool for everyday investors.

According to Kiplinger's, the following three large-cap growth funds were the most successful over the past 20 years.



Total Return




Maris & Power Growth (NASDAQMUTFUND:MPGFX)



ClearBridge Aggressive Growth (NASDAQMUTFUND:SHRAX)




S&P 500



Source: Kiplinger's. Data current as of July 31, 2014.

It should be noted, however, that these represent the cream of the crop; not every growth fund has performed this well. And many funds didn't even last that full 20 years and therefore aren't considered.

How many growth funds are there?

In 2013, U.S. News & World Report estimated that there were 7,238 mutual funds in existence.

Focusing specifically on growth, the Investment Company Institute said that by the end of 2013, there were 1,329 different funds focused on "capital appreciation." A whopping $1.725 trillion was invested in those funds -- up 125% from just 2002.

The most popular of these are the growth-focused exchange-traded funds (ETFs) offered by iShares. Investors can choose from a number of different types of growth ETFs, including ones that track the S&P 500, the Russell 1000, and the Russell 2000.

These funds have ultra-low fees, usually with an expense ratio below 0.3%, which helps explain their popularity.

Why invest in growth funds?

Growth funds play an important role in any well-balanced portfolio. They invest in companies that are shaping the future of our society -- and turning a solid profit in the process. That includes names like (NASDAQ:AMZN), Facebook (NASDAQ:FB), and Apple (NASDAQ:AAPL).

While income funds that focus on dividends will provide stability through both boom and bust cycles, investors with a long-term investing horizon can count on growth funds to provide the kind of kick that helps you reach your retirement goals.

If you're not investing in a growth ETF and you decide to go the mutual fund route, the two most important factors to consider are fees and management. You should shoot for an expense ratio that's lower than 1% -- and the lower the better. And it's important to investigate the team that's deciding where to invest your money. Though a certain fund may have been around forever, its leader may be in his or her first year on the job. You want someone who knows what they're doing and has a proven track record.

Leaked: Apple's next smart device (warning -- it may shock you)
If growth is what you're after, we might have an inside scoop just for you!

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early, in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Brian Stoffel owns shares of, Apple, and Facebook. The Motley Fool recommends, Apple, and Facebook. The Motley Fool owns shares of, Apple, and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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