Growth stocks, since last week, have become very lucrative. Indeed, the NASDAQ, which is the composite that includes the 100 best tech companies (Amazon, Tesla, Microsoft, Facebook, Netflix, Apple...etc.) in the United States, is currently in bull market territories. This means that the index has increased by over 20%. Growth stocks are known to be very volatile and can cause investors’ portfolios to go bust if not properly diversified. Cathy Woods, who is a famous asset manager for investing strictly in growth stocks, saw the value of her portfolio nosediving drastically during the year 2022, when the Federal Reserve hiked interest rates to combat inflation. Thus, growth stocks can be very risky to invest in, but many investors love investing in growth stocks due to the potential they reflect for future earnings and profitability. People invest in growth stocks because they believe that the company behind the stock has the potential for significant growth and future profits. Here are some reasons why investors may choose to invest in growth stocks:
1. High potential returns: Growth stocks are often associated with companies that are growing quickly and have a high potential for future earnings growth. If the company continues to perform well, the stock price may also increase significantly, providing investors with potentially high returns. 2. Future potential: Growth stocks often represent companies in emerging industries or with innovative products or services that have the potential to disrupt existing markets. Investors may choose to invest in these companies because they believe in their potential for future growth and success. 3. Diversification: Growth stocks may provide a way for investors to diversify their portfolios and reduce risk. By investing in companies with different growth prospects, investors can potentially balance out riskier investments with more stable ones. 4. Long-term investment horizon: Investing in growth stocks often requires a long-term investment horizon. Investors who are willing to hold their investments for several years or more may be attracted to growth stocks because they believe in the long-term potential of the company.
However, it's important to reiterate that investing in growth stocks can be risky. These stocks are often more volatile than other types of investments, and there is no guarantee that a company will continue to grow or perform well in the future. It's important to conduct thorough research and understand the potential risks before investing in any stock. So far, growth stocks seem to be on the way to becoming the best type of stocks to invest in. But nothing is yet guaranteed, we are only in April, and there are eight more months to go, and the stock market is very hard to predict. The Fed’s decision on interest rates in May will definitely determine the fate of growth stocks this year. If the Feds decide to pause on interest rates, then growth stocks will surely deliver on their expectations. If the Feds continue to hike rates, then growth stocks will tank once again.