How to Choose the Best Growth Funds: Investment Strategy in a Global Marketplace

In the age of globalization, the savvy investor has to take a cosmopolitan approach to investment strategy in order to pick out the best growth funds. In addition to a worldwide perspective, the planner would do well to consider the big picture over the long run.

Unfortunately, though, a lot of investors seem to have a hard time sorting out growth funds from risky rigs. As an example, myriads of investors pour billions of dollars into hedge funds that can surge during an upswell in the marketplace as a result of massive leverage.

Yet the same leverage will ensure that the outfits break down in a snap during the downstroke in the forum that always follows on the heels of an upswing. As the ill-fated pools blow up en masse, their hapless customers end up losing their shirts.

Given this backdrop, your task as an investor is to guard against meeting the same fate. The best way to do that is to stay clear of rickety vehicles from the get-go. You ought to keep in mind that a flimsy scheme to get rich quick is an excellent way to grow poor fast.

If you want to end up as a winner rather than a washout, then a good place to start is to look at the larger picture. The purpose of this article is to present a cogent approach to seeking out the most promising opportunities for investment planning in the global arena.

1. Identify the Large-scale Trends in the Global Economy

As a point of departure, it’s helpful to keep in mind a basic tenet of wealth creation: productivity is the wellspring of prosperity. To be precise, the output per unit of input has to rise if the wealth of the population is to grow.

If the output is to expand by a leaps and bounds, then the outturn will not come about by tweaking the existing system of production in a trivial way. Rather, a hefty jump can occur only if there is some kind of material change in the structure of the economy.

Given the need for an overhaul of the meshwork of production, an immediate corollary is the outgrowth of dislocations in the economy. In order to accommodate the transformation, a raft of jobs has to disappear and thereby give way to a slew of better slots to take their place.

Another way to describe the process is to say that innovation is the wellspring of productivity. An advance in productive capacity could stem from a technical breakthrough, as in the case of an efficient way to transform sunlight into useful energy. Or the breakout could be a virtual scheme, as in a novel way to provide an online service on the information highway.

2. Interpret the Trends in Terms of Commercial Opportunities

As an investor, your next task is to translate the novel trends into commercial opportunities. To take up an example, the buildup of the economies in Asia is a momentous occasion for local firebrands as well foreign fireballs.

For instance, China alone is responsible for gobbling up huge amounts of natural resources as it clambers up the ladder of industrialization. The storm of activity is highlighted by the fact that the nation is stamping out dozens of power plants in tandem in order to generate enough nuclear energy to complement conventional sources of electricity.

But even the frenzied program of nuclear power will not sate the ballooning need for electricity. Other sources of energy include coal and oil as well as sunlight. In fact, some of the most promising outfits in the field of solar energy are to be found in Chinese ventures tooling away at the front ranks of innovation.

On the other hand, the local go-getters are not the only ones to benefit from the upsurge of the emerging countries. The purveyors of goods and services located abroad can also reap the fruits of the jumbo trend. An example lies in an Australian firm that supplies raw materials to China or a German outfit that provides capital equipment to India.

The same is true of the service sector. A sample is found in a Swiss firm bearing expertise in the management of engineering projects, or an American concern providing a host of consulting services on marketing strategy.

Turning to a different theme, another sample of a macrolevel wave is the buildup in the ranks of senior citizens. This segment of the population is flourishing not only in terms of absolute numbers, but as a proportion of the entire populace as well.

By contrast to a bygone age, the cohort of senior citizens teems with spark plugs that are healthy, wealthy and wise as never before in the history of the planet. As a group, the elders lead more active lives, have more dough to spend, and take better care of themselves than their predecessors.

For myriads of old-timers, the golden years are anything but fusty and boring. The dynamos take courses and teach youngsters, join clubs and trek abroad.

Given this backdrop, a slew of ventures have spring up to serve the burgeoning segment of the population. In that case, one of your tasks as an investor is to explore the phenomenon and pinpoint the most promising niches in the flowering market.

3. Find Growth Funds to Match the Investment Strategy

Once you identify the most alluring segments of the global economy, your next step is to look for financial vehicles that focus on the budding niches. For this purpose, a prudent course is to look at a type of rig known as an exchange traded fund (ETF). This class of instruments is exemplified by the iShares brand: a lineup of products managed by Barclays Bank based in Britain.

One of the products within the iShares suite is a fund known as the MSCI Emerging Markets Index. Not surprisingly, the mission of the pool is to replicate the performance of its namesake index. The benchmark happens to be a proxy for the stock markets in nascent regions ranging from Brazil and China to Russia and Turkey.

The shares of an ETF can be bought and sold like any other equity on a stock exchange. In the case of the fund mentioned above, the ticker symbol for the security is EEM.

A stake in EEM stock will provide you with broad exposure to many of the most dynamic economies on the planet. Needless to say, but worth saying anyhow, a meaningful stake in the emerging markets is a smart choice for any portfolio whose mission is to beat the stock market at large over the long haul.

In addition to a broad-based vehicle to cover the emerging regions, you may also want to focus on smaller segments of marketplace. As noted earlier, one of the jumbo trends for the 21st century is the industrialization of the underdeveloped countries in the global marketplace. The transformation of the hinterlands will entail a massive buildup of infrastructure spanning the gamut from roads and bridges to ports and buildings. The program of modernization is sucking up vast amounts of raw materials ranging from copper and iron to zinc and oil.

For these reasons, you could spring for an ETF that takes advantage of the groundswell of demand for natural resources. As an example, the chosen fund might hold stakes in a variety of companies ranging from mineral prospectors and oil explorers to uranium miners and copper producers.

Clearly, the foregoing examples barely scratch the surface of the mass of opportunities in the marketplace. There’s a lot more where those came from

As an investor with an expansive view, the globe is your oyster. The challenge is to pick and choose the best growth funds amongst the multitude of opportunities for the long haul.

A Platter of Tips on Investment Planning

In a number of ways, thrashing out an investment strategy for growth funds is similar to the task of choosing the best opportunity for a dynamic venture. A methodical scheme for picking a theme for a vanguard business is presented in an article entitled “How to Choose a Business Concept for a High Growth Venture”. A link to the writeup is provided in the Resources section below.

For a cogent approach to investment planning, a basic task is to identify current trends and envision future prospects. This activity is a complex process beset by scads of pitfalls. An article on mistakes in long-range planning talks about the stumpers as well as pointers for avoiding the gaffes. The sketch, titled “Mistakes in Strategic Planning”, is linked below.

If you’re like many of your fellow investors, you’re wondering about the merits of mutual funds and hedge funds in comparison to index funds. A survey of hedge funds, as well as their performance relative to mutual funds and individual investors, is provided in a set of articles called Hedge Funds. The link to the collection is provided below.

Further information on exchange traded funds is available in an article at Wikipedia. The blurb is located at the address given below.

The MSCI Emerging Markets Index is a benchmark compiled by an agency named MSCI Inc. The latter outfit used to be known as Morgan Stanley Capital International. After acquiring a firm called Barra Inc. in 2004, the MSCI gang simply became part of a larger entity named MSCI Barra. Further information on the combined outfit is given at the Web site shown below.

If you have not done so already, you may want to set up a brokerage account. There are a number of factors to consider in choosing a stock broker. The crucial issues are discussed in an article titled “How to Pick the Best Broker to Buy Stocks Online”. The link appears below.

A Sprinkling of Caveats on Investment Strategy

If you happen to be an avid fan of the stock market as well as an experienced trader, you could perhaps consider investing in a selection of raw stocks in operating companies. The firms in the latter category span the gamut from miners and carmakers to retailers and consultancies.

To qualify as an adept trader, you would have to spend at least several hours per week keeping tabs on the stock market, and have gained at least half a decade of experience in the financial arena. If you don’t count yourself in that tiny band of gamesters, then you should not be trafficking in the basic stocks of elementary firms. Rather, your best bet is to go with the stability and performance on offer at index funds.

You should keep in mind the fact that high gain tends to entail high risk. As an example, the stocks of companies in emerging markets are usually more volatile then those based in the mature economies. Your task is to identify the most promising opportunities in terms of expected gains at a tolerable level of risk.

The vast majority of investors lag the market benchmarks by a hefty amount even when they opt for managed pools such as mutual funds. The same problem is applicable to index funds or any other instrument. The main reason for the dismal outcome is the fact that the punters dash in and out of the marketplace at precisely the wrong times. 

On the upside, there is a simple way to avoid the pitfall. When you buy into an index fund, you should not even think about fiddling with your portfolio in response to some frenzy or panic in the financial forum.

In line with the preceding remarks, the best way outpace the majority of investors is to refrain from darting in and out of the market. When you buy a stake in an index fund according to the procedure described in this article, you should ignore the asset for years on end.

A suitable stratagem is to go away for half a decade at least. That is the secret of success for an investment strategy based on growth funds destined to flourish over the long haul.

Storied investor Jim Rogers is known for his grasp of the global economy, along with the savvy to iron out an investment strategy for the long haul. In the following video clip, the wizard shares some of his thoughts on the market for natural resources.