Conservative growth is a type of investment principle in which a person invests in relatively low-risk stocks, bonds or other investments to receive a moderate growth rate on his money. Conservative growth is an alternative to more risky stocks or investments. Investing in companies that offer conservative growth, or investing in a conservative growth mutual fund, can be a good strategy for certain individuals, depending on their stage of life.
When a person invests money, he does so with the hope that he will earn a return on his investment. This return on investment allows people to retire and stop receiving paychecks when they have sufficient savings. For example, if a person's investments earn 10 percent per year and he has $500,000 US Dollars (USD) invested, he can earn an income of $50,000 USD per year from his investment and live off of this money without ever touching the principal balance in his investment account.
The rate of return a person receives depends in large part on what type of investment he has. A riskier investment may have a higher rate of return than 10 percent, or than a less risky investment. With the risky investment, however, the investor has a greater chance of losing his principal balance and having nothing. As a result, conservative growth estimates allow a moderate rate of return without as much risk as other investments. Still, because the investment is designed for growth, the premise is that the interest and money earned will not simply allow the investor to keep up with inflation, but it will allow the investor to earn more than inflation in order to grow his money.
Typically, certain types of mutual funds are considered to be a conservative growth investment. The funds may have a long track record of returning a certain rate of interest, which is higher than that the investor would get with certificates of deposit or treasury bonds, but lower than with certain stocks. Not all mutual funds are conservative growth funds, however; they are only those funds that invest in relatively stable companies whose prices are unlikely to fluctuate greatly.
A mutual fund aiming for conservative return on investment or conservative growth often invests in blue chip stocks. Blue chip stocks are stock shares in stable companies that have been around for long periods of time. General Electric, for example, is a blue chip stock.