Forget bitcoin and gold…I’d make a million from growth shares instead

Happy retired couple on a yacht

Many people are looking for ways to make a million and transform their lives. In recent times they’ve been drawn to Bitcoin and gold, attracted by the promise and hope of instant riches. Unfortunately, it’s not that simple. The Bitcoin price has stagnated for months and is well down from its 2017 highs. In my opinion, it’s a pretty worthless asset from an investment point of view. Instead of making you rich, I think Bitcoin is more likely to leave you with big losses.

Gold is another matter altogether. It’s a much more stable investment as it has a functional use as a metal. It’s also a proven store of value and currency, with a history that goes back thousands of years. The gold price tends to do well when inflation is high and when interest rates are low. In fact, there’s a strong argument that gold should be a small part of every investor’s portfolio. However, while it’s a sound investment, it’s not going to make us millionaires.

Make a million with growth shares

A much better way to make serious returns is by investing in growth stocks. These are companies whose revenues and profits repeatedly increase at a significant rate, over a period of many years. Think Fevertree and Asos. Their share prices are usually not cheap, since they’re much sought after. But as long as they meet investors’ growth expectations, then their P/E (price to earnings) multiples should be maintained, and their share prices should carry on rising.

What separates a good growth stock from an amazing one that can help you make a million is simply the length of time that a company’s able to maintain its growth for. The very best companies – like Apple and Facebook – haven’t just grown at a considerable rate, they’ve also done it over many years. It’s this time element that’s really important. Just like our stock returns, earnings are compounded over time.

Growth stocks often don’t initially pay dividends as the companies need the cash to carry on growing. But after a period of solid and consistent earnings growth, they will often start paying out. And as the company grows, so too do the dividend payments. Investors therefore get a double gain to help them make a million, first from the share price appreciation, then from growing dividends. There’s also a potential third way of benefiting. Companies with high growth rates are often acquired by even bigger companies. And they’ll often pay a premium to acquire the company’s stock.

Buy early for best results

Get this right and there’s the potential to make some pretty huge gains. Those who bought shares in Fevertree back in 2014 have seen the value of their investment rise more than tenfold. Of course, the best time to buy a growth stock is at the very beginning of its journey. This is likely to be the time when the shares are most reasonably priced. Before everyone else has jumped onto the bandwagon.

Sadly, growth stocks are among the riskiest types of stocks to own. There’s always a chance that growth will come to an end. And the company may never fulfil its promise, or even become profitable. But despite the risks, growth stocks remain one of the few genuine ways to make a million today. All you need to do is find them.

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Thomas has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020