Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What is the primary goal of a growth stock investor?

1. Stable income generation

2. Capital appreciation

3. Tax-free income

4. Risk aversion

The correct answer is: Capital appreciation

A growth stock investor primarily focuses on capital appreciation, which refers to the increase in the value of their investment over time. Growth stocks are typically shares in companies that are expected to grow at an above-average rate compared to their industry or the overall market. These companies often reinvest their earnings back into the business rather than paying dividends, prioritizing expansion and innovation. This strategy appeals to investors who are looking for significant gains in their investment portfolios rather than immediate income. They are willing to accept higher volatility in exchange for the potential of greater returns as the company's stock price rises over time. The other options, such as stable income generation or tax-free income, tend to align more closely with income-focused investing strategies, like dividend stocks or municipal bonds, which provide regular payouts rather than capital gains. Risk aversion is a characteristic of conservative investing practices, which typically involve lower growth potential. Thus, capital appreciation clearly stands as the primary objective for those investing in growth stocks.