Investment Basics

According to data from market watcher, Morningstar, domestic equity investment funds that take a large-cap growth approach to their portfolio management have seen the largest outflows of cash than any other fund category out there when it comes to 2010. Through to the end of October 2010, total money flows that left this category totaled more than $64 Billion.This was not all in one month, either. In fact, over the course of the year, this category has seen consecutive months where retail investors pulled money out of this category. Ouch.

Although domestic growth stocks are clearly out of flavor among retail investors, it does not necessarily mean that growth stocks no longer have their place within one's portfolio. Sure, there has been a lot written about the appeal of value investing, particularly after periods of negative market growth like what we witnessed in 2007, 2008 and part of this year. But now there is a lot to be said about how attractive growth-oriented investments are for those same long-term investors. After all, it was Warren Buffett who coined the phrase: "Be fearful when others are greedy and greedy when others are fearful," or something to that effect. Based on the amount of money flowing out of domestic growth investment funds, it seems that investors should be more bullish here than fearful.

There are other signs that point to growth stocks being next year's "darling" category as well. With increased dividends from companies like Microsoft and General Electric, both of which are not only rewarding investors with increased dividends, but double-digit percentage increases to those dividends. Such bold signals from companies that are as growth oriented as these two indicate that growth is still a driving factor among domestic firms and that these firms are still able to not only prove profitability, but generate cash for big dividend payments as well as acquisitions and other necessary initiatives.

The topic of dividends is an important one because it happens to be one of the best ways that traditional bond investors can enjoy income generation within their portfolios during periods where interest rates are expected to increase (and thereby hammer the value of their bond portfolio). As has been seen at large bond investment companies like PIMCO, investors are starting to turn away from bonds (PIMCO saw $1.9 Billion in redemptions in the month of November 2010 alone) and look elsewhere for income and growth. This is where growth funds become even more relevant.

While market watchers have definitely seen a lot of money leaving growth oriented investments, this trend actually spells "attractive," not "unattractive" for astute investors. As well, growth oriented companies are already seeing profits increase, some of them so much so that they have aggressively increased their dividends, which are an important alternative to traditional income sources, like bonds. So what do you think, are growth investments irrelevant?

--> Consider Equity Mutual Funds as a source of growth in your portfolio. Visit MutualFundSite.org to learn more about some of the best growth funds out there.

Chris has more than 18 years of financial services experience. He currently manages a website about Tax Lien Lists at TaxLienList.org.