Before we get too in depth with growth investing, it should be mentioned that this type of investing is short term, carries higher risk and if you are wanting to achieve FINANCIAL FREEDOM, it should be pursued after you have your security investments taken care of first. However if you have a 401K plan or another type of security investment going and you are wanting to produce residual PASSIVE INCOME on growth investing or simply just trade a stock for quick profits than continue reading.
If you are not familiar with what I am talking about with security investments than please watch the video below.
Overview to Growth Investing
Growth investing is a very broad topic to cover. This page will give you an over view of plans that can be put in place for growth investing following at least 2 different strategies within each plan. Before we get started with the plans though let’s recap a bit on what we’ve covered so far.
We covered the process of understanding what makes you happy, selecting investments through a stock in the different industry sectors, preparing yourself mentally for short term investing and simple tips that can help control your emotions while in a trade or investment for the short term. Now it is time to break down the plans for growth investing and give you options or a path to chose that best fits your needs.
First ask yourself; are you wanting to provide your self with a paycheck monthly, quarterly or yearly for income through a growth stock? perhaps you DON’T want to not use those checks to pay yourself and have it reinvested for growth instead?
Maybe your not interested in paychecks or the income but simply looking to buy low and sell high on a stock and take one lump sum payment?
After you have decided which of these best fits your needs move on to plan #1 where will cover growth investing for income first.
Growth Investing Plan 1:
Plan #1 –
Growth Investing for Income – If you are someone who wants to provide yourself with a passive income either monthly, quarterly or yearly, you can absolutely do this. As a matter of fact I am doing this right now as I am writing this website content. I GET PAID by the individual companies that I am a part owner of. Yes you heard that right… when you own shares of a company you are in fact a part owner of that business and you should look at it no other way. 😉
There are companies on the major stock exchanges, that pay you a paycheck to invest with their company. Now I must EMPHASIZE though, that this is a short term approach to investing and carries with it HIGHER RISK for losing money on the front end of the investment. What do I mean by that? I mean that you can lose money on the share price and dividend as well. Most of the time however the paycheck or (dividend) that is paid out; usually does not decrease much unless the company is over valued, has internal operations issues or poor cash flow. These are all things to consider before purchasing shares of any company.
We cover topics such as looking at whether a stock is over valued or undervalued, internal operating issues and poor cash flow later.
The Power of Compounding!
Another thing to consider is reinvested dividends or paychecks that you receive. This would mean instead of cashing out the paycheck to yourself, you have the paycheck put back into the investment automatically to buy up more shares of that company so that you receive a bigger paycheck next time they pay you again.
I like to compare this reinvesting of dividends or paychecks to the “snowball” effect. Your paycheck is reinvested and completely on auto pilot and the paychecks keep getting bigger and bigger.
John D. Rockefeller was famously quoted as saying, that a lot of his wealth was produced through the paychecks he received in the mail each month from “The power of compounding” on his investment of his oil trust with Standard Oil. He then went onto say that the most powerful force on earth is the power of compounding interest.
So if their are any doubts to his claim just do a little research on compounding and it’s powerful force and you will quickly find out that it is truly an amazing force for building wealth.
If this plan and it’s options available to you does not interest you then lets move onto plan #2.
Growth Investing Plan 2:
Plan #2 –
Growth Investing for a lump sum payment – You can also invest in a stock or in companies that do not offer a dividend or paycheck. Simply purchase a growth stock at a price you feel is low compared to it’s value, hold it for a while as the company grows in size and in profits and cash out for a profit weeks, months or even years later for a nice lump sum payment.
If you take this approach I must WARN you that there is even more RISK associated with this plan than plan #1. The reason is that there is no compounding effect taking place behind the scenes if you are invested in a company that does not OFFER a dividend. If however they do offer a dividend than your odds of losing money go down because you can make up losses on a share price with reinvested dividends. This is called “Dollar cost averaging”. We will save this topic for a later discussion as well because it can get very detailed in the process that takes place with dollar cost averaging and it’s benefits for building wealth and returns.
Now that we have the different plans in place for growth investing, you can decide which one best fits your needs. Remember…. I would NOT recommend taking either approach though unless you have a security investment already going for yourself or it is already covered. Another wards, you can AFFORD to lose the money if the investment goes south on you.
If you have any other dividend plans or ideas for investing in growth stocks feel free to leave comments below. The more information available to people will benefit everyone in their investing journey’s and learning how to play stock for profits!