Are growth or value stocks right for me? It’s a question that people have been asking for decades, and it is a question that will continue to be at the forefront of investors minds for many years in the future. There is no single right or wrong answer to this question, but there are ways that you can help find out which stocks match your investment goals and needs.
5 Questions to Help Decide Whether Growth or Value Stocks are Right for You:
- What kind of returns are you looking to make? Understanding your expectations for your investments will help you realize whether value stocks or growth stocks fit you better. In the long run many people believe the two methods are fairly even, but there is no doubt that growth stock investing has higher potentials for big gains. If you are aiming for excessively high returns you should gear more toward growth stocks, but if you have reasonable expectations of consistent growth value stocks might fit your mold best.
- What kind of investment risk tolerance do you have? It is definitely a fact that growth stocks are more volatile than are value stocks. The main reason for this is that value stocks are typically large and mature companies while growth stocks are often unproven and have many momentum followers. Don’t try investing heavily in growth stocks if you don’t have very much tolerance for risk.
- Are you better at finding companies with growth or companies with value? Quite frankly some people are better at finding companies with great product lines and terrific management teams that have great growth ahead of them, while others are much better at finding companies and stocks that are trading at a great value. Understanding your strengths and weaknesses should guide you in the correct direction.
- What is your individual situation? If you are a young person with a small amount of money to invest over a great amount of time maybe growth stocks are good risks for you. If you are nearing retirement and want mature stocks with less risk value stocks are more in your ballpark.
- How important is a dividend to you? A dividend is important because you are able to earn something simply from holding the stock, no matter the price performance of the stock. If you are one that puts a huge premium on stocks with a high dividend yield then you should stick to mainly value stocks, but if you believe a company without a dividend that is investing in their future product lines is attractive then growth stocks may be for you.
In the end there is no right or wrong answer to this question. In fact, it is often wise to look for stocks that you believe are growth stocks at a great value, which mixes the two investment methods. Diversification of growth and value stocks over the long run is a good idea for most investors.
Aaron K. Smith is a freelance writer with experience working in the mutual fund industry and writing about investing and the stock market.
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