Retirement is a blissful period where you can enjoy time with loved ones and the freedom to pursue your hobbies and passions.
However, rising inflation is threatening to erode the value of your money as the cost of goods and services increases.
What’s more, higher interest rates also make debt repayments more expensive, draining more of your monthly cash inflow.
The above are reasons why you need a solid plan to help grow your money, not just to stay ahead of inflation but to ensure that you build up sufficient savings to enjoy your retirement.
Investing is one of the most effective ways of growing your money and letting it compound to a significant sum.
While dividends are useful for generating a stream of passive income, you will also need the value of your portfolio to rise to ensure you have a comfortable pot of gold for your golden years.
Here is where growth investing plays an important role, so let us explain why.
A wealth of opportunities
The US stock market has proven to be a fertile ground for solid, wealth-building growth opportunities.
Let us look at some examples of stocks that have grown by leaps and bounds.
You are probably familiar with storied names such as Apple (NKE), Starbucks (NASDAQ: SBUX), and Nike (NYSE: NKE).
Did you know that an investment in Apple a decade ago would have seen $1,000 grow to more than S$11,000.
Moving on to Starbucks, which has 3,800 outlets worldwide.
An investment of S$1,000 in the coffee chain 10 years ago would have tripled your money to S$3,000.
And if you purchased the shares of Nike, the market leader in sports apparel and footwear, 10 years ago, your S$1,000 will also have grown to nearly S$3,000.
But, you may argue, these are all historical share prices and it is easy to cherry-pick which companies did well over the past decade.
It all boils down to not just having the patience to hold on to a growth stock over the long term, but to select the right stocks in the first place.
Buying the right stocks for the long-term
The key to enjoying enormous gains on your stocks comes down to choosing the right companies to own for years or even decades.
To do so, you need to search for businesses with certain characteristics that increase the chance of them becoming long-term winners.
Some of these attributes include having a dominant market share, products and services that are essential, a recognisable brand, sustainable long-term tailwinds that the business can ride on, and catalysts to enable the company to continue growing its top and bottom lines.
Remember that these attributes may make the difference between holding a lemon and a stock that can see its share price multiply manifold.
No amount of patience can make up for owning a poor business as its share price will languish, resulting in significant opportunity costs as the capital could have been deployed more productively.
Take Alphabet (NASDAQ: GOOGL), for instance.
The owner of search engine Google and video-sharing site YouTube has the clout to continue dishing out the right advertisements, making it a valuable partner for businesses that wish to reach out to their target customers.
From 2020 to 2022, the search engine giant saw its revenue rise from US$182.5 billion to US$282.8 billion.
Net profit increased from US$40.3 billion to US$60 billion over the same period.
For the first nine months of 2023 (9M 2023), Alphabet saw revenue increase by 7% year on year while net profit jumped 14.6% year on year to US$53.1 billion.
This dominance can only grow as the company nurtures a virtuous cycle that attracts more people to its search engine and cloud services, thereby making it more attractive to advertisers.
Another example of a firm with good growth potential is Netflix (NASDAQ: NFLX).
The streaming TV company has released an ad-supported tier that is gaining good traction while increasing its slate of movies and TV shows.
Revenue jumped from US$25 billion in 2020 to US$31.6 billion in 2022 while net profit increased from US$2.8 billion to US$4.5 billion over the same period.
The number of paid subscribers surpassed the 200 million mark in the fourth quarter of 2020 and has now grown to 247.2 million as of 30 September 2023.
Exposure to sustainable growth trends
The key to filtering out sustainable, growing businesses is to identify sustainable growth trends that can last for years or even decades.
A boom in e-commerce looks set to benefit players such as Mercadolibre (NASDAQ: MELI) and Amazon (NASDAQ: AMZN) for many more years.
And this digitalisation trend will require higher levels of data security as more data is shared across networks.
The crop of cybersecurity companies such as Okta (NASDAQ: OKTA) and Crowdstrike (NASDAQ: CRWD) stand to benefit from this boom.
These are examples of companies that could post multi-year growth as they can latch onto sustainable trends that act as catalysts for their business.
Get Smart: Not too late to include growth
There is a wealth of opportunities out there for investors seeking growth.
The above are just some examples of growth stocks that you could add to your buy watchlist.
If you have not started investing in growth stocks yet, do not fret.
It is never too late to start to deploy some money into the stock market.
All it takes is commitment and patience, and you can start to see the fruits of your investment labour in time to come.
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Disclosure: Royston Yang owns shares of Apple, Nike, Alphabet, and Starbucks.