Growth Stocks vs Value Stocks
Its a very common question among individual investors, which is the better bet: value stocks, or growth stocks? This is an age-old question that just will not go away. There are always those out there who are out there pounding the table saying growth stocks are king, and then there are some who seem to be shouting for us all to stick to value stocks.
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When deciding what to put into your portfolio, you must consider what it is you are looking for. If you are 25 years old and looking for 15% returns annually for a number of years, you will need to go heavier on growth stocks. If you do this though, you must understand that growth stocks have a higher chance of being knocked down in bear markets, and you must be ready for volatility. If you are 65 years old and looking for a little extra income for when you are 75 years old, you will likely be looking to deep value stocks. These are the stocks that will never make you rich, but you can sleep much easier at night knowing they have a solid track record, and you are likely receiving a good dividend from the stock as well.
Ideally, you really should have some amount of growth stocks and some amount of value stocks in your portfolio to diversify. If you are middle-aged and looking to build your investment portfolio over the years, and you are solely in value stocks, you are likely costing yourself a pretty good amount in annual returns. In my personal portfolio I like to keep a little bit more on the growth side than the value side, but I am well diversified. On the average I have about 60% in growth names, and 40% in value names. The current market environment has led me to have about a 50-50 split at this time to be a little more defensive.
You need to be able to be comfortable with your portfolio at all times. If you are in too many growth names that are too volatile for you, maybe you need to add a classic value stock. If you are in all value stocks and believe you aren't getting the returns you need, go pickup a growth stock.
As an investor, if you are wondering which stocks are considered value and which are consided growth, here is an example. Altria Group, Inc. ( NYSE: MO) is the classic value stock. The stock yields 4.1% and is a steady grower that you can feel safe each night with. On the other hand, Crocs, Inc. (Nasdaq: CROX) is a fast growing unique shoe company where many growth investors have made a large amount of money.
You must understand the risk vs return in value and growth stocks, and once you understand what it is you are looking for then you are set to start picking those stocks. Make sure you diversify and are comfortable with your mix of value versus growth stocks.
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