7 Simple Strategies for Growing Your Portfolio

Some investors may be content to generate income from their portfolios without growing their overall value. But most investors would like to see their nest eggs increase in value over time. The best approach depends on your financial goals, the types of investment you choose, your risk tolerance, your investment time horizon, and the amount of money you invest.

Some approaches take more time or come with more risk. However, there are tried-and-true methods that investors of all stripes have used to grow their savings and investments, including buy-and-hold, diversification, and dollar-cost averaging.

Defining Growth

Growth can be defined in several ways when it comes to investing. In the most general sense, any increase in account value can be considered growth. This increase can result from, for example, the interest paid on a certificate of deposit, or from higher closing prices from one day to the next of stocks owned, or even when you deposit additional money into your investment account.

However, where investment return is concerned, growth usually refers to capital appreciation, where the price or value of the investment increases over time. Such growth can take place over both the short and long term, but substantial growth in the short term generally carries a high degree of risk.

Here are seven strategies that you can use to grow the value of your portfolio of investments.

1. Buy and Hold

Buying and holding investments is perhaps the simplest strategy for achieving growth. This is a passive strategy where you buy assets and hold them for long periods regardless of performance.

If you have a long time to invest before needing your money, it can also be one of the most effective strategies. Investors who simply buy stocks or other growth investments and keep them in their portfolios with only minor monitoring are often pleasantly surprised with the long-term results. 

An investor who uses a buy-and-hold strategy is typically not concerned with short-term price movements and technical indicators.

2. Market Timing

Those who follow the markets or specific investments closely, such as day traders, may be able to beat the buy-and-hold strategy if they can consistently time the markets correctly to buy when prices are low and sell when they are high.

This strategy yields much higher returns than simply holding an investment over time, but it also requires the ability to gauge the markets, entry points, and exit points successfully.

The average investor doesn’t have the time to watch the market every day, the trading experience, or the necessary access to relevant, real-time data. Therefore, it’s better to avoid any attempts to time the market and focus on other investing strategies better geared toward long-term investing.

3. Diversification

This strategy is often combined with the buy-and-hold approach. Different types of risk, such as company and interest rate risk, can be reduced or eliminated through diversification. Diversification is the process of investing in different types and classes of assets to reduce the risk associated with a single investment.

Numerous studies have proven that asset allocation is one of the key factors in investment return, especially over longer periods.

The right combination of stocks, bonds, and cash can allow a portfolio to grow with much less risk and volatility than a portfolio that is invested completely in stocks. Diversification works partly because when one asset class is performing poorly, another is usually doing well.

4. Invest in Growth Sectors

Investors who want aggressive growth can look to sectors of the economy like technology, healthcare, construction, and small-cap stocks to get above-average returns in exchange for greater risk and volatility. Some of this risk can be offset with longer holding periods and careful investment selection.

5. Dollar-Cost Averaging

Dollar-cost averaging (DCA) is a common investment strategy that is often used with mutual funds. Using DCA, an investor allocates a specific dollar amount to periodically purchase shares of one or more specific funds.

Because a fund’s net asset value (NAV) will vary from one purchase period to the next, an investor can lower the overall cost basis of the shares as fewer shares are purchased when the fund price is higher and more shares are bought when the price declines. DCA thus allows the investor to reap a greater gain from the fund over time. 

Another advantage of DCA is that investors don’t need to worry about buying at the top or bottom of the market or trying to time their transactions. They simply commit to investing a sum of money regularly. In this way, they grow the value of their holdings via an ever larger number of shares and position themselves to benefit from the capital appreciation of those shares.

6. Dogs of the Dow

Michael O’Higgins outlines this simple strategy in his book, “Beating the Dow.” The Dogs of the Dow is a stock-picking strategy that consists of selecting the Dow Jones Industrial Average (DJIA) stocks with the highest dividend yields. Those who purchase these stocks at the beginning of the year and then adjust their portfolios annually have usually beaten the return of the DJIA index over time (although not every year).

There are several unit investment trusts (UIT) and exchange-traded funds (ETFs) that follow this strategy. So, investors who like the idea but don’t want to do their own research can purchase these stocks quickly and easily with a single investment.

7. CAN SLIM

This method of picking winning stocks based on specific growth characteristics that position them for major price moves upward was developed by William O’Neil, founder of Investor’s Business Daily. His overall idea was that a sound investment strategy based on proven rules was the key to successful long-term growth investing.

His methodology is quantified by the acronym CAN SLIM. It stands for:

• C: The (C)urrent quarterly earnings per share (EPS) of a company need to be at least 18% to 20% higher than they were the year before.
• A: The (A)nnual earnings per share needs to reflect material growth for at least the previous five years.
• N: The company needs to have something (N)ew going on, such as a new product, a change of management, etc.
• S: The company should be trying to repurchase outstanding (S)hares, which is often done when companies expect high future profits.
• L: The company needs to be a (L)eader in its category instead of a laggard.
• I: The company should have some, but not too many, (I)nstitutional sponsors.
• M: The investor should understand how the overall (M)arket affects the company’s stock and when it can best be bought and sold.

Because it involves time and effort on an ongoing basis, CAN SLIM isn’t an investing approach for everyone.

The Bottom Line

These are just some of the simpler methods for making your money grow. There are more sophisticated techniques used by both individuals and institutions that employ alternative investments, such as derivatives, that can control the amount of risk taken and amplify the possible gains that can be made.

For more information on how you can find the right growth strategy for your portfolio, consult your stockbroker or financial advisor.