What’s the Difference Between Growth vs Value Investing?
Buying and trading stocks is all about balance and risk. Growth vs value investing represent two key strategies when buying and selling stocks. What are they? How can each one benefit you? Keep reading to learn what you need to decide.
Investing in growth stocks is all about picking tomorrow’s big winner. The idea is to find a company that will increase its market share and revenue faster than normal in the industry.
Analyst use today’s information to try to make educated guesses about which companies will have a competitive advantage over their peers in the near future and grow quickly.
This is a higher-risk strategy than value stocks, which will be covered below. Because the potential for very big gains is there, the prices are higher. If things don’t go as planned, the losses will also be greater.
Some examples of recent growth stocks include Shopify, Netflix, Facebook, and Salesforce. All have recently had the capacity to grow quickly and create a great return for investors.
Value stocks are a much different strategy. They are not as dramatic, though they offer a great, steady way to earn a return. Value stocks refer to stocks that are currently selling for below what they are worth.
They aren’t going to explode in value like growth stocks. For whatever reason, they are selling below what they should. In other words, much like shopping for good deals at a department store sale, investors look for bargains on the stock market.
These stocks tend to be well-established companies rather than new ones. There isn’t the same chance for huge, flashy returns like growth stocks. Instead, the returns are spaced out over the long-term. They’re also more consistent.
Growth Vs. Value Investing
Which strategy is better? Like many things in finance, it depends on what your goals and timeframe are. If you want to slowly and surely build your investment portfolio over time, value investing makes sense.
If you have a higher risk tolerance and want to make a play for quick wealth, try your hand at growth stocks. Make sure you have enough cash on hand to weather the storm if the riskier investment doesn’t pan out.
Though these are opposing philosophies, there are some options that give you a little bit of each. They are called blended funds and have a happy medium of risk and stability.
See here for more information about how to cash in on your stock investments.
Pick a Strategy and Start
Weigh the pros and cons of growth vs. value investing and start as soon as possible. It is never a bad time to look at the market and make a prediction about where to invest.
Financial experts can help you determine a strategy and pick out stocks that will fit into your overall financial goals. If you’re new the business of investing in stocks, it’s likely best to go with the safer value stock strategy.
If you have a bit of experience and cash, try to double down with a growth strategy.
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