Value Investing vs. Growth Investing: What’s the Difference?

INTRODUCTION

Investing in the stock market involves different strategies. Two of the most popular are value investing and growth investing. Each has its own approach, benefits, and risks. Understanding the difference can help you decide which may be better for your financial goals.

What Is Value Investing?

Value investing is about finding stocks that appear to be undervalued. These companies may not be in the spotlight, but they have solid fundamentals such as strong earnings, good management, and long-term potential. Investors buy these stocks at a lower price than their true worth, hoping the market will eventually recognize their value.

Key Characteristics:

• Focus on low price-to-earnings (P/E) or price-to-book (P/B) ratios

• Often involves mature companies

• Emphasis on financial statements and fundamentals

• Less risky, but usually slower returns

Example: A well-established company whose stock price has dropped due to short-term issues, but whose business remains strong.

What Is Growth Investing?

Growth investing targets companies that are expected to grow at a faster rate than others. These companies often reinvest profits to expand rather than pay dividends. The goal is to benefit from future stock price increases.

Key Characteristics:

• Focus on revenue and earnings growth

• Often involves newer or tech-focused companies

• Higher risk, but potential for higher returns

• Valuation metrics may seem expensive

Example: A fast-growing tech company that is gaining market share and increasing sales rapidly.

Which One Should You Choose?

There’s no one-size-fits-all answer. If you prefer a more conservative approach and steady returns, value investing might suit you. If you’re willing to accept more risk for the chance of higher returns, growth investing could be a better fit. Many investors use a mix of both strategies to balance risk and reward. The key is to align your approach with your financial goals, risk tolerance, and investment timeline.

Need help figuring out your investment strategy? Contact us today to get started with a plan that works for you.