Value Investing or Growth

Value Investing or Growth

We are all trained to want growth, especially when it comes to our investments. Corporations are so focused on growth that some Blue Chip companies look... well, boring. Your investing style and tolerance for risk will orient you around two main types of funds — growth and value. Value stocks can still grow, but they have different characteristics that can match your investing style.

Owning a mix of both funds is probably a smart move, but you still want to know the components of growth vs. value funds.

Share Price vs Dividend

Growth businesses are likely to reinvest profits, and that pushes value up. Value stocks focus on paying out dividends to shareholders, as a way to grow. Growth stocks include tech companies, big pharma and can be seen as expensive and overvalued.

Growth stocks tend to be newer companies with new products and future oriented products as well as services of the future.

Value funds are stocks that are steady as a share price, meaning their prices only reflect their fundamental worth in combination with their dividend payout record. They can trade at a lower price when compared to their fundamentals.

Value stocks can be undervalued in an era where growth is high. A good earnings report can have a boost for share prices, just as some bad news may see prices fall on hard times.

Measurements

Growth funds are expected to have faster than average growth in revenues, earnings or cash flow. They may have price-to-earnings and price-to-sales ratios that are higher than market averages or higher sales and earnings justify higher valuations.

Value companies may have lower-than-average sales or slow earnings growth rates, but the story in the lower price-to-earnings ratios. That ratio describes how the share price reflects multiples of earnings per share.

Returns

Growth funds are chosen as they are expected to offer higher returns than the overall market when stock prices are rising overall. Beware that the other side is that they are more likely underperform the market when stock prices drop.

Value funds focus on perceived safety instead of growth, and often use their earnings to pay dividends. This allows value funds to provide more stability in share prices and continue to provide dividend income. Growth still comes and don’t underestimate their potential to appreciate long-term if the market recognizes their true value. 

 
Risk

Growth funds generally carry higher risk than value funds, and also a higher tolerance for risk. Risk is best born over a long time horizon. If you are in your yearly years, seek growth. With short time spans or risk aversion seek out more value funds. The risk with either is that the company not succeed in growing and producing value. Just because it’s called growth, doesn’ mean an increase of growth funds is always realized.

Value funds or growth, the focus needs to be on investing in correctly priced companies that offer a valuable service or product, have a fantastic management plan and are steadily gaining in share price or dividends paid.

Whichever investing style you choose, understand the fundamentals of the business, management and marketing plan. Evaluate share price and spend your time understanding the mission statement of any company before investing money.