There's a large element of safety that comes from a portfolio of, say, blue-chip ASX shares.
However, I believe there's a way to invest in a particularly safe manner while simultaneously taking advantage of opportunities offered by ASX growth stocks.
How, may you ask? Diversification.
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I could diversify with ASX growth shares to boost returns
If I were to boast a portfolio of ASX shares I believe could consistently provide a 5% annual return, I might feel relatively safe in my investments.
As per the rule of risk versus reward, it's likely that such a modest (though decent) return would offer a large degree of safety.
But there is a way I could bolster my returns without compromising such safety. That is, creating a shadow portfolio of ASX growth shares.
As the name suggests, growth shares generally represent up-and-coming companies in the early-to-mid phases of their growth.
Thus, they rarely offer dividends. They can also be particularly susceptible to rate hikes, as they often fund their growth through debt.
Such factors mean many growth stocks suffered through 2022. And while their pain probably isn't over yet – many commentators expect interest rates to increase in the coming months before easing in late 2023 – several quality growth stocks are likely trading at a decent discount right now.
In fact, my Fool colleague James recently outlined three stocks brokers are tipping to gain as much as 52% in the coming year.
But I would personally aim for a more modest yearly return. For instance, I think 15% sounds reasonable.
How I might aim to grow my annual returns by 40%
At that rate, if I were hoping to up my annual returns by 40%, I would probably build my growth holdings to be around a fifth of the size of my main portfolio.
After identifying an assortment of ASX shares I believe could grow 15% annually on average, my anticipated returns could look like this:
| Portion of my holdings | Expected annual return |
| 80% | 5% |
| 20% | 15% |
| 100% | 7% |
As readers can see, I could feasibly bump my expected annual return from 5% to 7% – a 40% increase – by building a shadow portfolio of ASX growth shares a fifth of the size of my core portfolio.
Though, no investment – no matter how considered – is guaranteed to provide either returns or downside protection.
Additionally, as discussed, higher returns generally come with higher risks.
Risk management
However, in my opinion, adding some growth shares to an otherwise entirely blue-chip portfolio is itself a form of risk management.
That's because diversification is one of the most effective ways to manage the risks involved with investing. Though, there's no way to entirely abate the risk of loss.
