Financial advisers often counsel clients to have a mix of Growth and Value stocks in their portfolios. It makes sense – Growth stocks do well during bull markets and Value stocks outperform during sketchy markets. Morningstar famously characterizes the mutual funds that it analyzes as either Growth, Value, or a blend of both.
Different Shopping Styles
If you think about it, the Growth investor and the Value investor employ very different strategies and methodologies. If they were shopping in a department store, the Value investor would head straight to the Sale rack and see what bargains they can find from the racks of clothes there, or they would read through the store flyers or coupons and buy what is on sale. The Growth investor, on the other hand, sees what is trendy or “in” and buys that item. Price is a concern for the Growth shopper/investor but not as big a concern as is being on the cutting edge. The Growth shopper reads the fashion mags and wants to look like the photos. The Value shopper could care less about what the models are wearing; they just want to look decent and not pay full price. Both are valid ways to shop and dress.
Two Different Skills
If you are a Sale-Rack shopper, to carry the analogy further, or you know or are married to someone who is, then you know that there is a certain mentality that goes with being a good Sale-Rack shopper. They wouldn’t be caught dead buying the latest in fashion because it is not worth it to them to do so. Conversely, the trend-setter shopper would be loathe to stoop to shopping in the sale rack. No chance of getting Instagram followers by wearing last year’s fashions.
Same Way in Investing
It is the same way in investing. Investors who are successful at finding good values are probably not the best at finding cutting-edge stocks that will lead the bull market upward. So, if you feel like you are good at finding bargain stocks, you probably should let someone else do the picking when it comes to Growth stocks. That means letting a Growth Fund do the picking for you. Go to Morningstar and find a Growth Fund that you like and buy that fund. Likewise, if you are good at spotting trends and know how to monetize your skill, then you probably aren’t as skilled at finding bargains, so you should use a Value Fund to do your Value investing. Always remember that it is good to have a mixture of Growth and Value in your portfolio in order to capture the upside (Growth) and to find undervalued deals out there (Value).
Need Help? Ask Me
If you don’t know whether you are good at either Value or Growth investing, or if you don’t know if you are particularly good at any type of investing, then you should get help with your portfolio construction before doing anything. Contact a CERTIFIED FINANCIAL PLANNER™, such as me, or through the cfp.net website. When it comes to your own money, it is very important to get it right, and the money you spend to work with a CFP® you could earn back fairly quickly if they help you get it right.