The Right Way And Wrong Way To Buy Growth Stocks

The Right Way And Wrong Way To Buy Growth Stocks

Posted On March 16, 2021 3:37 am

Tech stocks have been the darlings of Wall Street for a decade. That’s understandable in a world mired in slower economic growth.

Likewise, it’s certainly reasonable to allocate a portion of your savings to strong companies in that category. My retirement portfolio, for one, is about 65% dividend stocks and 35% growth.

That’s a nice chunk of change, obviously. Yet it’s important to remember that, no matter what, markets never go straight up.

Concerns over rising interest rates sent growth and momentum stocks falling into a 10% Nasdaq correction in the last month. That’s why I wrote, “How to Protect Your Portfolio From Rising Interest Rates” just two weeks ago. It highlights why prudent long-term investors shouldn’t fear long-term interest rates.

Notice two important things from the chart above. First, almost all stocks fall in a market decline.

Even Amazon (AMZN) and Alibaba (BABA) were 30%-40% undervalued when the tech downturn began. But, usually, good valuations mean a company will fall less than its overvalued peers.

We saw that principle play out so far with Apple (AAPL), which fell nearly 20% into a mild bear market, and Tesla (TSLA), which slid a full 40% in a month.

The Right Way And Wrong Way To Buy Growth Companies

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About author

Dividend Sensei
Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I'm a proud co-founder of Wide Moat Research, Dividend Kings, and the Intelligent Dividend Investor. My work can be found on Seeking Alpha, Dividend Kings, iREIT, and the Intelligent Dividend Investor. My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives. With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams and achieving long-term financial goals.

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