What Is Long-Term Growth (LTG)?
Let me explain to you what long-term growth (LTG) is—it's an investment strategy designed to boost the value of your portfolio over a multi-year period.
Key Takeaways
- Long-term growth (LTG) is an investment strategy that aims to increase the value of a portfolio over a multi-year time frame.
- Although long-term is relative to your time horizons and individual style, generally long-term growth is meant to create above-market returns over a period of ten years or more.
- LTG portfolios can be more aggressive and might have a ratio of 80% stocks to 20% bonds.
Understanding Long-Term Growth (LTG)
You should know that while 'long-term' depends on your own investment horizons and style, LTG generally targets above-market returns over ten years or more.
Given the extended timeframe, LTG portfolios can afford to be more aggressive, with a higher percentage of stocks compared to fixed-income options like bonds. For instance, while an intermediate-term balanced fund might allocate 60% to stocks and 40% to bonds, an LTG fund could go with 80% stocks and 20% bonds.
LTG does exactly what the name suggests—it delivers growth to your portfolio over time. The issue is that this growth isn't always steady; your LTG portfolio might lag the market in early years and then surge ahead, or the reverse could happen.
This unevenness poses a challenge for you as an investor in an LTG fund. Even if the fund provides solid average growth over a decade, year-to-year performance will fluctuate, leading to different results based on when you enter and how long you stay. Timing is a universal issue in the market, not just for LTG investors.
Long-Term Growth (LTG) and Value Investing
The main benefit of LTG is that short-term price swings don't matter much to you. In a similar vein, many value investors look for stocks with strong LTG potential, targeting companies that are undervalued but have solid fundamentals. They hold on until the market recognizes that strength and the value rises, then sell.
As an individual investor, you often gain from adopting an LTG focus, which might steer you toward value investing. But remember, LTG just means seeking returns over a longer period—it's not tied to any specific style like value investing.
Long-term funds are equally likely to track the market via indexing as they are to hunt for undervalued stocks. Sticking to value investing can be tough for fund managers over the long haul.
While LTG fund investors are advised to anticipate decent average returns over many years, if you're less patient, you can always exit unless there's a lock-up period, which is more common in hedge or private funds. If an LTG fund strings together too many average years, investors like you might pull out for better opportunities, forcing the fund to sell holdings early before their true value is realized.
