What Are Growth Stocks?

Growth stocks, also known as glamour stock, are those kind of shares that are considered interesting for their return on equity (ROE). The ROE is an index used for determining how well did a company invest their earnings for obtaining more earnings. The ROE is obtained by dividing the net income by the stockholder's equity. In order to qualify as a growth stock, the ROE of the company must be 15% or more.

There is one thing that should be considered by every responsible investor. Growth stocks should not be used as part of your cash flow. They are very risky investments that may earn you a lot of money, or loose a lot of money. That's why the dollars that you have set aside for investing in growth stock shouldn't be considered as part of your annual expenses.