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Personal finance observation, musing and decisions in a journey toward financial independence by 36 with at least $1 million.

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What Is Growth Fund?





From Yahoo!:

As their name implies, these funds tend to look for the fastest-growing companies on the market. Growth managers are willing to take more risk and pay a premium for their stocks in an effort to build a portfolio of companies with above-average earnings momentum or price appreciation.

For example, Dell and Microsoft are generally considered "expensive" stocks, because their prices have been bid high relative to their profits. But because they enjoy vibrant markets and have rapid earnings growth, managers like Scott Schoelzel of Janus Twenty have no qualms paying big prices. Schoelzel knows that investors crave these super-charged growth stocks and will keep piling into them as long as the growth keeps up. But if the growth slows, watch out -- the more momentum a stock has, the harder it is likely to fall when the news turns bad.

That's why growth funds are the most volatile of the three investment styles. It's also why expenses and turnover (which leads to tax liability) are also higher. For these reasons, only aggressive investors, or those with enough time to make up for short-term market losses, should buy these spooky funds.

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