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What Is a Capital Growth Strategy?

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  • Written By: K.C. Bruning
  • Edited By: John Allen
  • Last Modified Date: 24 November 2016
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Capital growth strategy is a long-term plan for increasing the value of an asset. It is a method of maximizing returns with careful planning and the potential for fairly high risk. This kind of portfolio typically consists mainly of equities. The primary goal is to target stocks that are forecasted to grow fast and beat the market average. Capital growth strategy portfolios can both make large gains and plunge in value quickly.

A portfolio built with the capital growth strategy will usually consist of equities, with some fixed income securities and low risk elements such as money market securities or cash. The fund balance of a portfolio built with the capital growth strategy depends upon the needs of the investor. Some factors to consider include investment goals, investment horizon, and the amount of money to be invested. It is also important to consider risk tolerance.

The most aggressive portfolios using capital growth strategy will consist of mostly, or even all, equities. Investments this high-risk are less common, and a typical portfolio will have from 65 to 70 percent in equities. This percentage enables the investor pursue a high return while leaving room for a cushion. Many investors prefer to have some safety funds to balance the volatility of equities. In essence, it is the practice of balancing growth investments with value investments.

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A capital growth strategy portfolio will often have several mid to small-cap stocks. These are considered to be growth stocks, which fit well into a long-term strategy. Not only will this kind of investment typically grow steadily, but it will often beat the market average rate.

In order to maximize returns, risk mitigation is typically an important part of capital growth strategy. For this reason, it is a type of investment that is often best suited to experienced money managers. Handling this kind of portfolio successfully requires discipline and careful attention. Managers who work with the capital growth strategy must remain alert to dramatic changes in the market.

While aggressive capital growth strategies can provide fast gains, it can also result in massive drops. For this reason, an investor should approach this kind of strategy with a good knowledge of the risks it entails. A good candidate for the strategy will have several years to invest or have enough assets to survive a dramatic drop. Even with a long-term focus, these capital growth investments can be unpredictable enough to result in a severe loss.

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