Growth Funds Should Be Part of Your Portfolio

I’ve had some great conversations with clients recently and wish to take this time to explain a bit about growth stocks. In particular growth mutual funds.

 “Send your grain overseas, for after many days you will get a return. Divide your merchandise among seven or even eight investments, for you do not know what calamity may happen on earth.” Ecclesiastes 11:1-2

U.S. growth stocks are certainly one of the seven or eight investments I usually recommend all clients have in their portfolios. By definition, growth stocks make up about half of the S&P 500 index. In fact, about half of the total market index is made of growth stocks. The other half of the index (or market) are value stocks. Or, in other words Growth and Income stocks.

I only recommend investing in growth or value stocks (or any stock for that matter) if you have a long-term attitude towards growth and wealth creation. And only as part of a well-diversified investment portfolio. By having a long-term attitude, we are agreeing with the Proverb, it takes “many days” to get a return.

The Vanguard Growth Index mutual fund (VIGRX) has outperformed the S&P 500 index for each of the last several time periods, both short and long-term. In fact, VIGRX has bested the S&P 500 index by over 1% for the past 10 years and just over 0.2% over 15 years. So, if you have remained fully invested in VIGRX you would have beat the index.

If you invested in an actively managed growth mutual fund, you would have assumed more risk and may or may not have beat that index. In this article by Mark Hulbert you will learn you have about a 10% chance of beating that index. Either way, if you were invested in U.S. stocks you would have earned a return “after many days.”

An example of an actively managed growth fund is Growth Fund of America (GFAFX). This fund is more expensive because you are paying the salaries of researchers and managers and usually more marketing expenses than passive type funds. You also take more risk than the market. However, that risk and additional fees pay off in the longer run. This fund also beat the S&P 500 over the last 15 years. Except that, it has not beat the market over the last ten years!

You may not remember, but in 2008 the S&P 500 lost over 38% of its value. This index also lost over 40% of its value between 2000 and 2002. So, keeping the long-term view is vital to success.

Of course, both these funds are not the most aggressive mutual funds out there. For those with more appetite and capacity for risk, you can invest in aggressive growth funds which include smaller company stocks and emerging growth countries. The latter of which is the best performance this year. Each of these investments have their bad periods as well.

Which is why we will do well to “send your grain overseas, for after many days you will get a return.” And, “divide your merchandise among seven or even eight investments, for you do not know what calamity may happen on earth.”

As we prepare for this Holiday season will you please remember to “Always rejoice, constantly pray, in everything give thanks. For this is God’s will for you in Christ Jesus.”

Be well, Dan

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About the author

Daniel Joss MBA, CFP®, RLP®

Daniel D. Joss MBA, CFP®, RLP® is a seasoned Financial Life Planning professional with over 16 years of advising clients. Dan earned a Master of Business Administration, with an emphasis in financial planning from Regent University in 1999. He has been selected more than once as Top Financial Advisor in Northern Virginia Magazine. Dan speaks regularly in various peer forums and professional organizations. He has also been quoted in various national and local print and online publications.

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