Don’t struggle to find the needle in the haystack; just buy the haystack.”
-Jack Bogle, American Investor & Founder of The Vanguard Group
Value investing and growth investing are two different investing styles. The main difference between value and growth stocks is that value stocks are companies that investors think are undervalued by the market, and growth stocks are companies that investors think will deliver better-than-average returns.
At Nalls Sherbakoff, we believe in the power of diversification. Our clients’ portfolios own both value and growth stocks. Based on academic research, we have a tilt toward value stocks over the long term.
- Generally undervalued
- Higher dividend yields
- Lower valuations (price to earnings ratio or P/E)
- Lower volatility
Value stocks are favored by investors who prioritize income and the preservation of capital. These investors are often more risk averse and seek stocks that are trading at a discount, offering potential for capital appreciation while providing a degree of downside protection. Benjamin Graham and Warren Buffet are the most well-known value investors.
- Generally overvalued
- Lower dividend yields (or no dividend yields)
- Higher valuations
- Higher volatility
Growth stocks appeal to investors seeking capital appreciation over the long term. These investors are willing to tolerate higher levels of risk and market fluctuations in exchange for the potential for substantial returns. T. Rowe Price is known as the “father of growth investing.”
To illustrate the difference between value and growth, we compared two Schwab funds from each style of investing.
SCHV – Schwab US Large-Cap Value ETF
- Price/Earnings: 16.73
- Dividend Yield: 2.39%
- Total Holdings: 520
- Top Ten Percentage: 18.87%
SCHG – Schwab US Large-Cap Growth ETF
- Price/Earnings: 34.10
- Dividend Yield: 0.44%
- Total Holdings: 245
- Top Ten Percentage: 54.71%
|U.S. Equity Growth Stocks||U.S. Equity Value Stocks|
|Top Holdings||Schwab – SCHG||Schwab – SCHV|
|1||Apple Inc||Berkshire Hathaway Inc Cl B|
|2||Microsoft Corp||Johnson & Johnson|
|3||Amazon.Com Inc||Exxon Mobil Corp|
|4||Nvidia Corp||JPMorgan Chase & Co|
|5||Alphabet Inc Class A||Procter & Gamble Co|
|6||Alphabet Inc Class C||Home Depot|
|7||Meta Platforms Inc Class A||Chevron Corp|
|8||Tesla Inc||Merck & Co Inc|
|9||UnitedHealth Group Inc||AbbVie Inc|
|10||Eli Lilly and Co||PepsiCo Inc|
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