Growth stocks still dominating investor portfolios – here are the top picks

Growth stocks remain a popular choice for investors. Here’s why they’re so hot and what other shares you should consider for your portfolio.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Hand arranging wood block stacking as step stair on paper pink background

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Even during recent market turbulence, it appears that growth stocks are still the investment of choice for many. Here’s what people are adding to their portfolios and some alternatives you should consider to boost your investing performance.

[top_pitch]

What is considered a growth stock?

The name probably gives it away, but a growth stock is a share that is expected to grow and outpace the market average in terms of price.

Most investors tend to focus on growth or income shares. Growth stocks don’t usually pay significant dividends, whereas dividends tend to be more of a priority for income shares.

The basic idea behind growth stocks is that you’ll make money through capital appreciation. So the amount you initially invested appreciates and the value of your equity increases.

Why are investors using growth stocks?

It’s somewhat surprising that this category remains a top choice for investors. There’s a lot going on in markets right now that’s wobbling growth valuations, including:

Ben Laidler, global markets strategist at eToro, explains the current situation: “We’ve seen the valuations of big tech stocks fall back in the past month or so, especially since the Federal Reserve indicated that it was prepared to hike rates once next year and as much as three times in 2023.

“When rates are low, investors are typically prepared to pay elevated premiums for growth stocks in exchange for large future potential earnings. However, in a rising interest rate environment, that risk-return trade-off may become less attractive for some.

“The fact that growth – and in particular big tech – stocks increasingly dominate portfolios suggests two things: firstly, that investors believe interest rate rises will be slow and steady; and, secondly, that they believe there is still plenty of mileage in growth stock earnings.”

[middle_pitch]

What are the most popular growth stocks?

According to data from eToro, this category of shares accounted for nine out of ten of the most-held stocks on the platform. Their top ten investments at the end of Q3 looked like this:

Position Stock
1 Tesla Inc. (TSLA)
2 Nio Inc. (NIO)
3 Apple Inc. (AAPL)
4 Amazon.com, Inc (AMZN)
5 GameStop Corp. (GME)
6 Alibaba Group Holding Ltd. (BABA)
7 Microsoft Corp. (MSFT)
8 Alphabet Inc. (GOOGL)
9 Palantir Technologies Inc. (PLTR)
10 Coinbase Global Inc. (COIN)

It’s no surprise to see EV stocks Tesla and Nio take the top spots. Original meme stock GameStop is the only one here that doesn’t fit the growth bill.

What alternatives to growth stocks are there?

Growth stocks can play an important part in your portfolio. However, it’s really important to make sure your investments are diversified.

Including some stable income shares is always a good idea. But if the pressure of buying shares is too stressful, you should consider an investing solutions provider.

These platforms will build and manage a diversified portfolio tailored to your needs. This can be a great way to have diversification without the headache of arranging everything yourself.

Final thoughts

During periods of economic uncertainty, growth stocks are the types of shares to be hit first and hit hardest.

This may not be a worry during short-term dips. But if there’s an extended bear market, it’s important you have other assets that will protect your wealth or make you money.

Just remember that there are no guarantees with investing and you may get out less than you put in. But making sure you’re not putting all your money into one type of stock is a good way to try and minimise any potential losses.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »