Why growth investing

How and when the current trend will end is unknown. A blended investing strategy means you buy companies that fall into both value and growth categories. The returns you can get by pursuing a blended approach typically lag either a growth or value strategy short term, depending on which is outperforming the other. As such, it can be psychologically difficult to stick to a blended approach when more money is being made either with growth or value investing. Over the long-term, however, a blended approach can often outperform an investor who switches between growth and value in an attempt to time the market.

Growth investing seeks to take advantage of those companies early in their business cycle. Combined with companies in a high-growth industry, a growth investor can benefit as companies grow their revenues, earnings and cash flow.

This approach, however, is not without its downside. Growth companies can be very expensive as measured by traditional valuation metrics, such as the PE ratio and BP ratio. In addition, abrupt shifts in market sentiment can send growth company values falling as they did during the dot-com bubble.

He graduated from law school in and has written about personal finance and investing since With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree. Select Region. United States. United Kingdom. Rob Berger, Benjamin Curry. Editor, Editor. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.

Featured Partners. Annual advisory fee None. Annual advisory fee 0. Was this article helpful? Share your feedback. Send feedback to the editorial team.

Rate this Article. Thank You for your feedback! Something went wrong. Please try again later. Best Ofs. More from. By Kat Tretina Contributor. However, because they tend to sway along with market sentiments, negative news can have an outsized impact on the share prices. Moreover, growth stocks often prefer to reinvest their profits for expansions instead of handing out dividends.

Now the million-dollar question! Value investing vs growth investing, which investment strategy is better? The answer, however, is not so straightforward. Both approaches have their own merits and demerits. An investor can choose to invest a basket of stocks from both value as well as growth universe.

In recent years, this hybrid approach has become quite popular. In these challenging times of lockdown and quarantine, everything around us is at a literal standstill, including our stock market. Many of us now wish they had diversified their portfolio, or are looking for efficient ways to diversify it now. Diversification is an investment strategy that recommends owning several investments that tend to perform well at different times to reduce the effects of market fluctuations.

But then how do you choose different baskets? Rukesh Reddy, Director of Digital Transformation at Citibank in New York, talks about why every investor needs to lean heavy on software companies while building an investment portfolio. Personal Business. Start Banking Sign Up Login. Download for iOS Download for Android. Ways to Manage Accounts. Investment Accounts. Life Planning. Market Overview. Research Overview. Education Resources. Education Overview. Help When You Need It.

General Investing. College Planning Accounts. Small Business Accounts. Open an account. Open Menu bar. Ask Merrill. Why Merrill Edge. General Investing Online Brokerage Account. Life events. Life priorities.

Investor education. Tools and calculators. Contact us. Open an account with Merrill. Growth vs. Text size: aA aA aA. Growth and value are two fundamental approaches, or styles, in stock and stock mutual fund investing. Footnote 1 Growth investors seek companies that offer strong earnings growth while value investors seek stocks that appear to be undervalued in the marketplace.

Because the two styles complement each other, they can help add diversity to your portfolio when used together. Growth stocks represent companies that have demonstrated better-than-average gains in earnings in recent years and that are expected to continue delivering high levels of profit growth, although there are no guarantees.

Higher priced than broader market. Investors are willing to pay high price-to-earnings multiples with the expectation of selling them at even higher prices as the companies continue to grow High earnings growth records.

While the earnings of some companies may be depressed during periods of slower economic improvement, growth companies may potentially continue to achieve high earnings growth regardless of economic conditions More volatile than broader market. The risk in buying a given growth stock is that its lofty price could fall sharply on any negative news about the company, particularly if earnings disappoint Wall Street.