Definition
The term capital growth strategy refers to the creation of an investment portfolio that seeks to maximize value in the long term. A capital growth portfolio will allocate more than half of the fund's assets to equities.
Explanation
As is the case with an aggressive growth strategy, a capital growth strategy is a portfolio allocation that is willing to take on additional risk in exchange for higher returns. This type of portfolio is better suited to individuals with high risk tolerance scores. Typically, nearly two thirds of the asset's funds will be allocated to equities, such as common stocks, with the remaining money allocated to fixed-income securities, such as bonds, as well as cash. The primary objective of a capital growth investment strategy is long-term capital appreciation, meaning growth in the value of common stocks.
While a capital growth strategy may allocate 60 to 70% of the portfolio's funds to equities, an aggressive growth strategy may allocate nearly all funds to this asset class. The higher returns associated with these strategies come with higher risk, which means the volatility of these portfolios will be greater. Investors should be prepared to incur significant losses at times, in addition to the potential for above average gains.