Stock Investing: Growth Stocks v. Value Stocks
Right now, there are several investment opportunities available, from stock investing to real estate investment. However, it is important to choose your investments carefully in the coming months. This post will focus on stock investing, although the principles can be applied in other areas.
Before you make your move, it is important to understand the differences between growth stocks and value stocks. For the beginning investor, or for the conservative investor, the current climate should be one where you focus on value stocks. Here is a basic primer of the differences between the two.
Growth stocks
These are the stocks that grow rapidly. Returns have the tendency to be above 10 percent — and even higher — per year on these types of stocks. Some growth stocks return more than 20 percent a year. However, these types of higher returns come with higher risk. Growth stocks can also result in dramatic losses if the market turns around. Mortgage bond funds represented a growth investment (if not exactly a stock). Yesterday we saw exactly what happens when things get out of control. Choose your growth stocks carefully, in solid companies and sectors that offer reasonable areas for growth. Wind energy and solar energy stocks are examples of sectors that might continue to do well in the future while offering high returns. (But, as always, do your own research and make your own decisions. All investment carries the risk of loss.)
Value stocks
You’d think these stocks are cheap, due to the terminology, but they’re not. Value stocks are solid, venerable stocks that offer reasonably predictable (and somewhat boring) returns. The idea behind value stocks is steady growth. These are companies that have proved their staying power year after year. Most blue chip companies are value stocks. You buy them because they tend to hold their value. Watch the 52-week average on these stocks, and buy when you are at a low. Right now, these are probably close to a low.
Building your investment portfolio
The best thing to do is incorporate both types of investments in your portfolio. This will help you achieve a measure of balance. Choose carefully, though, and according to your style. If you’re a worrier, go heavier on the value stocks. If you can handle the risk, try to mix in a little more in terms of growth stocks.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional.
Tags: stock investing blog, investment opportunities, growth stocks, value stocks,
investment portfolio, real estate investment
