Conservative Growth

What Is Conservative Growth?

Conservative growth is an investment strategy that aims to grow invested capital over the long term. These funds typically target long-term investors who place high importance on wealth preservation but would also like to take advantage of some of the market’s high growth opportunities. Conservative growth funds usually allocate a high percentage of the fund to fixed income while investing the remaining allocation in growth or aggressive growth stocks.

Understanding Conservative Growth

Conservative growth funds can be attractive to investors for a few different reasons. Many investors will use conservative growth funds as a core holding. They are also appealing to investors with a more conservative investing style. They can also be considered a lifestyle fund, which makes them a good investment for investors seeking a core portfolio in which to save for retirement.

Many investors choose conservative growth funds as a core holding for their retirement investing. For conservative investors, they offer a high allocation of low-risk fixed income investments while still offering the potential for substantial capital gains. These funds are often considered as a lifestyle fund option and can sometimes be compared to target-date funds because of their balanced approach, however, their allocations do not shift over time.

Vanguard offers one example of a core conservative growth fund in its LifeStrategy series. The Vanguard LifeStrategy Conservative Growth Fund is one of four offerings in the LifeStrategy series, with the other options including the LifeStrategy Income Fund, LifeStrategy Moderate Growth Fund, and LifeStrategy Growth Fund.

The Vanguard LifeStrategy Conservative Growth Fund holds approximately 40% of the portfolio in stocks and 60% in bonds. It uses a fund-of-funds approach, with its top equity allocation to the Vanguard Total Stock Market Index Fund Investor Shares at 24% and its top fixed income allocation to the Vanguard Total Bond Market II Index Fund Investor Shares at 42%.

Aggressive Growth vs. Conservative Growth

Many investors find the potential returns of aggressive growth funds appealing. However, they are not willing to take on aggressive risks. For these investors, conservative growth funds can be a good alternative. They offer the benefits of a diversified portfolio. Rather than investing nearly 100% of the portfolio in growth or aggressive growth stocks, these portfolios take a more conservative approach by investing with a high allocation of fixed income and a smaller portion of the portfolio in growth stocks. This can give investors the benefit of exposure to growth and high growth stocks with the risks mitigated by capital preservation through fixed-income investments.

The JPMorgan Investor Conservative Growth Fund provides one example of a standard conservative growth fund. The fund allocates 30% of the portfolio to equities and 70% to fixed income. Its equity allocations are globally diversified, with approximately 21% in U.S. equities, 6% in international equities, and 3% in emerging markets.