Growth vs. Value: What To Consider In These Two Investing Strategies – Morgan Stanley Smith Barney

When you invest in a mutual fund or exchange traded fund (ETF), you’ll get information about that fund’s investment strategy or style. An investment strategy is simply a set of guiding principles a fund manager uses to choose the stock or bonds in which they’ll invest.
Two well-regarded strategies are growth investing and value investing. Each approach has financial advantages as well as some potential drawbacks. However, the two investing styles can also complement each other nicely. One way to diversify your portfolio might be to invest in both growth-and value-based funds, or in funds that combine the two investment styles.
Growth- or value-oriented funds typically include the words “growth” or “value” in their names. Funds that combine the two styles are “blended” funds and may include that term in their names.
Here’s what you need to know about growth and value investing strategies.
What is growth investing?
This strategy primarily focuses on investing money into what are known as “growth” stocks. Often, growth stocks are found in industries such as technology. These equities are:
• Expected to grow at a faster pace than the overall market
• More focused on reinvesting profit to grow the company than paying dividends
• Generally in industry groups most associated with the potential to succeed from the development of new and transformational products or services
Growth stocks also tend to be:
• More expensive than peers within an industry group and/or the broader market
• A bit more volatile (risky) than the average stock and more sensitive to macroeconomic trends
What is value investing?
Fund managers or investors who follow this strategy focus on putting money into “value” stocks. Value stocks generally trade at a discount relative to an investor’s interpretation of fair value and may include companies in slower-growing industries. Value investors believe that over time the market will recognize the worth of these stocks, sending their prices higher. These stocks are:
• Generally those of companies or industries with less popularity among average investors
• May be slow to appreciate in share price, but may pay dividends
• Tend to be in older, more established industries
Value stocks also tend to be:
• Less expensive relative to peers within an industry group and/or the broader market
• Associated with companies that may be considered contrarian or turnaround situations
Is one investment strategy better than the other?
Not necessarily. Growth and value stocks—and therefore the investing styles that focus on them—tend to take turns leading the market. Growth stocks typically do best when companies are showing strong profits and interest rates are falling. On the other hand, value stocks tend to perform better shortly after an economic market goes into recovery mode.
You don’t have to choose one strategy over the other, and many investors use a combination of both to build their portfolio. Depending on your financial goals, how long you’ll invest your money, and how much risk you’re willing to take on, there may be room for both growth- and value-style funds in your portfolio. Your Financial Advisor can help you come up with a strategy that makes the most sense for your financial situation.
Brian Jacobs is a Executive Director & Wealth Advisor in Valencia CA at Morgan Stanley Smith Barney LLC (“Morgan Stanley”) He can be reached by email at brian.jacobs@morganstanley.com or by telephone at (661) 290-2022.
Brian Jacobs may only transact business, follow-up with individualized responses, or render personalized investment advice for compensation, in states where he is registered or excluded or exempted from registration,
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