Introduction
Both value investing and growth investing are investment strategies that aim to meet the financial goals (generate profit from stocks or build long-term wealth). Value investing refers to the strategy in which investors buy and hold undervalued stocks (that are trading below their book value). On the other hand, growth investing refers to the investment strategy where investors do not concern about the current price of the stocks but they buy the stocks of the companies having explosive future earning potential. In this post we are going to highlight key differences between these two investment options that helps you to understand which option is suitable for you.
Difference Between Value Investing And Growth Investing
Major dissimilarities between value and growth investing can be explained as follows;
1. Meaning
Value Investing: It refers to buying stocks that are trading below the real or book value
Growth Investing: It is an investment strategy of buying the stocks of those companies which are expected to grow faster in the newer future
2. Features
Value Investing: The main characteristics of this strategy are:
- Long-term holding period
- Deals with undervalued stocks and securities
- It has lower volatility and risks
Growth Investing: The key features of growth investing are:
- Gives emphasize on future growth and earning potential
- Involves higher level of risk
- Earnings are reinvested
3. Advantages
Value Investing: The main benefits of value investing include:
- Higher return potential
- Less risky and volatility
- Regular dividend income
Growth Investing: The main advantages of this strategy are:
- Possibility of massive future income
- Compounding benefit
- Future trends and innovation opportunity
4. Drawbacks
Value Investing: The main cons of value investing are:
- Complex to find out real or intrinsic value of the stock
- Possibility of missing out profitable short-term opportunities
- Needs more effort and research
Growth Investing: The main drawbacks of growth investing are:
- Risk of dramatical market fluctuation
- Risk of loss of capital
- No regular dividend return
5. Risk Involved
Value Investing: It involves lower level of risk than growth investing
Growth Investing: It involves higher risk than value investing
6. Ideal For
Value Investing: This strategy is ideal for those people who avoids risk and seek regular income
Growth Investing: It is suitable for those who can tolerate risk and optimistic
Also Read
Pros and cons of value investing
Pros and cons of growth investing
7. Type Of Stock
Value Investing: Generally investors buy the stocks of established or mature companies
Growth Investing: Investors buy the stocks of young and innovative companies
Value Investing Vs Growth Investing (Comparison Table)
|
Basis |
Value Investing |
Growth Investing |
|
Risk Profile |
Lower |
Higher |
|
Time Period |
Long-term |
Medium to long |
|
Stock Type |
Undervalued |
Having high growth potential |
|
Dividend |
Yes |
No |
|
Companies |
Established |
Young/innovative |
|
Return |
Steady |
Explosive |
|
Ideal For |
Risk avoiders |
Risk takers |
