If your aim from investing in the stock market is to maximise your wealth then there are a number of things you should do and also a number of things you shouldn't do.
The single most important thing you should avoid is losing money!
That might sounds obvious however it certainly isn't easy as the stock market is filled with traps just waiting to snatch your hard earned dollars.
Because of the dangers of capital loss from investing, this regularly leads investors to buy blue-chip stocks such as Wesfarmers Ltd (ASX: WES) to minimise their chances of losing money.
Not losing money is one thing, but significantly growing your wealth is something else.
The problem with blue-chip stocks is that, generally speaking, at best they will help you get rich slowly. Wesfarmers is a perfect example with the share price having gained only 16% in the past five years – a result that is just over 2% higher than the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
For investors who don't want to settle for the market average blue-chip stocks might not be the answer but …
Smaller capitalisation (cap) stocks could be the answer!
Historically, small and mid-cap indices have outperformed the large-cap indices over the long term. Naturally smaller companies can potentially grow at faster rates than large ones, however, they generally do also involve larger risks.
If you're looking to super-charge your portfolio by investing in stocks outside of the blue-chips then the following three could be worth taking a closer look at.
- Cover-More Group Ltd (ASX: CVO) is a leading Australian travel insurance agency with an estimated 40% market share as well as high growth prospects internationally. With the share price retreating from its recent all-time highs, now could be an opportunity to acquire this $700 million growth stock.
- Premier Investments Limited (ASX: PMV) has a market capitalisation of nearly $2 billion so it's not exactly small, however, with plans to roll out its Smiggle brand across numerous international regions the company's fast earnings growth could continue.
- Bellamy's Australia Ltd's (ASX: BAL) share price has been on a tear since its initial public offering in August last year, but with a large growth opportunity for selling its branded organic baby food and formula into Asia the stock could have further to run.
