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Value Vs Growth Vs Index Investing: Which Is The Best Strategy For You?

You’ve probably heard of these investing strategies. Now learn what they are and how to use them to make investment decisions.


This article was written in partnership with StockFacts. Views expressed in the article are the independent opinion of DollarsAndsense.sg

Most investors have one simple objective when it comes to investing in the stock market – invest today with the aim of making future profits.

While their objectives may be similar, the approach each investor adopts can be drastically different. This has given rise to various popular investment strategies.

If you are relatively new to investing, you may have heard of various strategies such as value investing, growth investing and index investing. But what exactly do these investment strategies entail? And, more importantly, which is the best strategy you should use?

What Is Value, Growth & Index Investing?

To start off, let’s first explain how each of these strategies work.

Value Investing:

Value investing is a strategy where investors aim to find stocks that they believe are currently undervalued. In such instances, an investor will buy the stock, expecting that its value would rise in the future to be priced fairly.

Another way of understanding value investing is to think of it as going to the supermarket, and getting the deals that are on discount. For example, if a packet of tissue which usually costs $3.00 is now selling at $1.50, it may be considered a value-for-money buy. Value investing in the stock market works in the same way.

While there is no one sure way to ascertain if a stock is truly undervalued, most value investors would use financial ratios such as Price-To-Earning (P/E) and Price-To-Book (P/B) to determine the intrinsic value of the stock.

Read Also: 6 Basic Things Everyone Needs To Know Before Investing In Their First Stock

Growth Investing:

The idea behind growth investing is that an investor hopes to invest into an exciting company that would be able to substantially grow their business – revenue, market share and profitability – in the years ahead.

Compared to value investing, growth stocks may not necessarily show strong fundamentals or suitable financial ratios today. In fact, some of these companies may not even be profitable. However, investors may still invest in the stock because they believe that the company’s future is bright.

Very often, a company is considered a growth stock because of some key value propositions that it is able to offer. For example, a company may have millions of active users using its products and services even though it has not make a profit (yet). While value investors may avoid such companies, growth investors who see the potential of a company may want to buy its stock.

Index Investing:

Unlike value and growth investors, an index investor isn’t concern with making profits through investing in the right companies. Instead, an index investor is more concern with earning the market return. In layman terms, this simply means the average return of the stock market.

Index investors do not pick individual stocks. Instead, they use instruments such as an Exchanged-Traded Fund (ETF) to help them achieve the market return. For example, the Straits Times Index (STI) ETF will be able to deliver a return that is similar to the actual performance of the STI.

Read Also: Why Average Singaporeans Should Buy The STI ETF As Their First Stock

 What Is The Best Strategy For Me?

While our intention to invest is to make profits from the stock market, we also need to be smart in choosing the right strategy that makes sense for us. Here are some factors that you should consider before you decide on the investment strategy that will work best for you.

#1 How Much Time Are You Willing To Spend To Research On Stocks?

Here’s a simple fact. To be effective in both value or growth investing, you need to knowledgeable in identifying and analysing stocks. Otherwise, you will not be able to select the right stocks to invest in.

To help you with your research, you can utilise stock screeners such as StockFacts. StockFacts allows you to screen for potential stocks on the SGX that fits into your search criteria.

For example, if you are looking for undervalued stocks, you could look at financial ratios such as P/E and P/B to screen for potential stocks to invest in. Once you have shortlisted these stocks, StockFacts allows you to quickly gather more news and information about them.

Read Also: Step-By-Step Guide To Investing Better Using StockFacts

#2 Risk Tolerance

As a rule of thumb, growth investing tends to be riskier. That’s because growth stocks are more “expensive” to buy, relative to the returns that they (currently) give to investors. In addition, growth stocks are also the ones that are usually most impacted when a recession hits, as their business growth could be affected by factors such as rising interest rates, political uncertainty and weaker overall demand.

In comparison, value investing tends to be less risky (though not always so) since value investors usually invest in high quality stocks at a low price. Even during recessions, these stocks should continue performing reasonably well, even if stock prices are impacted, as they are likely to be stable companies with well established businesses.

#3 Your Personal Interest

We all have different interests in life. Your personal interests may also impact your stock investment strategies.

For example, if you are someone who likes reading technology related news, and enjoy checking out what are the latest products that may change our world, then you may have a natural inclination to invest in technology companies such as Apple, Alphabet and Amazon.

Closer to home on SGX, you can use StockFacts to quickly screen for companies within the sector of your interest. Major sectors on SGX would include real estate, telecommunication, financial institutions, technology and healthcare.

Source: StockFacts

If you are keen on growth investing, we suggest that you start off by taking a personal interest in the sectors that you are looking at. Some sectors, like technology and energy, would naturally have higher growth potential than others. Of course, growth companies can exist in any sector, and you may be able to find good stocks in the sector you’re interested in.

StockFacts – Screening For Potential Investment Opportunities

If you are looking for investment opportunities on the SGX, StockFacts is a suitable platform for you to rely on to discover new investment opportunities, and to stay updated with what’s happening to the stocks that you have invested into or are actively monitoring.

For example, if you are intending to take on a value investing approach, you can use StockFacts to screen for stocks which falls within your search criteria.

Our Search Criteria

Results: Mainly real estate companies

Source: StockFacts

When it comes to growth investing, StockFacts also allows you to easily search for the sectors that you are keen to invest in. This is particularly useful for those who want a quick snapshot of individual sectors, before doing more detailed research on specific companies within the sector.

Getting started on your investment journey may appear challenging or even intimidating. However, with the right tools in hand, and a clear idea on your investment philosophy, investors can make their journey much easier.


 
 

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