3 Reasons to Invest in a Growth Company

Investing in a growth company is an attractive proposition for many investors. When compared to other types of stock that is available, growth stock has several benefits that you will potentially be able to realize. Here are a few reasons that you might want to invest in a growth company.

1. Capital Appreciation

If your main objective in investing is capital appreciation, growth stock is one of the best tools that you could possibly use. With growth companies, the only thing they think about is getting bigger and bringing in more profit. They do not look at other aspects of the business as importantly as growing. As an investor, this can be very beneficial to you. If you choose the right growth company, it could potentially increase your portfolio substantially. Many growth companies have been known to appreciate in value rapidly, and as an investor, you will be able to reap the benefits of this.

2. Tax Benefits

Another reason that you might want to consider investing in a growth company is to maximize your tax benefit. Growth companies traditionally put as many of their resources as they can back into the company. This creates a scenario where the company can grow even more. When they do this, there is no money left to pay a dividend to the investors. If you invest in a company that provides you with regular dividends, you are going to have to count the dividends as taxable income. This means that you will pay taxes on the dividends at your normal marginal tax rate. By comparison, if you hold onto the growth stock for an extended period of time, you will have to pay capital gains taxes on the returns when you sell the stock. The capital gains tax rate is going to be less than your marginal tax rate in many cases. This means that the returns that you receive from growth are going to be more beneficial to you than those that you receive from dividends.

3. Long-Term Investment

Many investment experts say that investing with a long time horizon is the best approach. This way, you can minimize the small swings in the market and benefit from the overall growth of the company. Investing in a growth stock is definitely a long-term proposition. Growth stock tends to be volatile and it can move up and down quickly. Because of this, you want to plan on investing in a growth company for least five years before selling your stock. This will get you in the habit of buying and holding which many experts have proven to be a solid investment strategy. You can continue to purchase shares of stock in the growth company on a regular basis and hold onto them. Over an extended period of time, this will result in you having a sizable amount of stock in the company in your portfolio.

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