Growth vs Value vs Income Investing: The 7-Point Comparison: Investors try their best when looking for strategies, tools, and techniques to help them spend. They read, understand, and analyze each style to their best. But there are so many investment strategies in the market now that anybody can get confused, about which he/she should go. After all, the matter is about their long-term wealth creation.
Broadly, there are three trendy investing styles among investors, namely, Growth Investing, Value Investing, and Income Investing. While each style has its objective and goal, it is also imperative to make a comparison among all three.
Moreover, we got so many requests for this comparison because of its unavailability on the internet. Thus, below is a seven-point comparison article for you.
Let’s see who wins among Growth vs Value vs Income investing styles.
Comparing Growth vs Value vs Income Investing Strategies
1. Price
The rates of value stocks are undervalued. Their real intrinsic value is not realized by the market yet, and thus, their prices are lower. Soon, when the buyers start noticing, the stocks will get to their actual worth.
Growth stocks are priced higher than their current actual value. This high price is due to the stock’s excellent past performance and unbelievable growth returns. However, buyers believe that their current market value will increase and then the current price will become undervalued.
Income stocks are placed precisely according to their actual value. These stocks have proved their worth and maturity, thus, providing users with a regular stable source of income.
2. Earnings
Value stocks have become undervalued because of past lousy performance. Thus, their recent earnings might not be very appealing. The notion behind them is these stocks will bounce back and recover their losses because of their fundamentally stable nature.
Growth stocks are the pioneers here.
Their earnings are skyrocketing, which many times make them overvalued too. Even in the times of recession, when every stock was in depression, these were the ones who shine.
Income stock’s earnings are at par with the market standards, and they generally distribute some portion with shareholders too. It makes them lag behind others when it comes to the growth rate.
3. Volatility
Value stocks are moderately volatile but in an upward trend only; making them more stable than the market. The reason is their undervaluation. The price chart is somewhat unstable because of too much buying and selling, but most of the times they uptrend only.
Growth stocks are the most volatile among three, more volatile than the market.
Thus, the risk is pretty high when investing in them. Any bad news or event will leave a messy price chart behind. Also, if their earnings go down than old records, then you would see the worst scenes.
Income stocks are quite a safe bet here. These are one of the least types of stocks. They, usually, neither trend much nor fall too sharply. But, it slows down the long-term returns for investors also.
4. History
Value stocks either have a terrible or short recent past performance. Therefore, their actual value has come down. These are small, new companies who have become publicly listed not much ago.
Growth stocks have relatively good performance.
Their records are exceptionally well and thus, become overvalued many times. Also, their history is not too long as these are also small or mid-cap companies.
Income stocks have relatively the best history among all of them. These organizations have proved their worth over the long term and are now distributing their profits among stakeholders. They are well-established and have low or no bad records. The only not-so-good thing about them is their slow growth rate.
5. Spotting Method
Now, here’s something vital for you! Every type of stock is pretty easy to spot but choosing the right firm among them is the main point here. For that, you can look at the company’s financial data and statements. One can also go for prospects while researching. However, the basic gist of the spot method is as follows:
Value stocks are generally trading at discounts or have more assets value than the liability section. Remember, any low-cost share organization is not a Value Stock firm.
Growth stocks are commonly present in the innovative or hot-trending sectors. For instance, if there is any firm with a new good or service which can help people, then it can easily be considered a growth company. Moreover, the technological, health and primary utility sector are always on-trend. Thus, be wary of them.
Income stocks can easily filter out because not every company pays a dividend. And, the one who does is a different category. You can search on any broker platform for dividend-paying stocks. But again, be somehow rigid and strict about the fundamentals here.
6. Suitability
After everything, in the end, we just want to know if it would suit us or not!
Value stocks are suitable for persons who can take some risks. Although these are more stable bets than growth stocks, nothing can be said. Also, you should be someone who can avoid value stock traps. In other words, you’ll not fall for attractive tactics, like dividends, used by company directors to attract novice investors.
Growth stocks are the most volatile and risky investments. You should be someone who doesn’t panic when sudden price changes occur. It is because growth stocks are highly sensitive and are affected quickly by bad news. One should also not expect any current or regular income from growth companies. Also, you need to invest money and forget it for at least 7-8 years.
Income stocks are for people who like to play safe. That’s why these call pensioner’s shares. If you are good-to-go with low returns but less risk, then these are perfect for you. Also, you cannot take out the money from them; otherwise, the income will stop.
7. Objective
No, it is not similar to the above point. The ‘objective’ is what one wants to achieve by investing, and ‘suitability’ is if something is right.
When investing in value companies, your aim should be to earn the right amount of profit. It is because the company was valued once high and is now undervalued. So, you invest at the current rate and sell when it attains real value.
Growth stocks are generally known to be capital or wealth-creating investments. The reason is their continuous excellent performance and expected high performance. You want to multi-fold your money and keep it there.
Income stock’s main objective is to keep getting you some money. Although it is most lucrative to older people, many millennials are also trying to spot good income stocks to keep their passive income game up from now only!
So, this was the most straightforward yet most effective comparison between value, growth, and income investing styles. Do you agree on this or not? What? You want more! Okay, so here’s something extra for you below.
Extra Bonus: Examples
Nestle is a great value stock in Europe currently. Its valuation has decreased significantly, and the reason is an excellent investor took his money out. Thus, making it undervalued now. However, this might not be the long-term case because you know how big nestle is!
NH hotels group is a fantastic growth stock in Europe and is gradually planning to take over the whole market. With a tremendous growth rate of 15% per annum, it fits perfectly into the requirements.
Alcon, the airline share, in Europe is a great income stock for investment. It is a well-established organization with a market capitalization of $2.7 Billion. Moreover, their constant dividend rate is 2.2% and is projected to be 4% in the future.
So, this was all the comparison we could do in this article. We have tried to cover every significant point in this post, but some minor points are remaining. You would be able to get them once you understand every investing strategy in detail.
You can read about Value Investing here; Income Investing here, and growth investing here.
Till now if you have already set your mind for any strategy, then wait and read this last conclusion.
The Final Conclusion
All three investing strategies have shown their excellent performance and are legit. All three have some advantages and disadvantages. At last, all shall depend upon you. The deciding factors from your side should be – expected return, both short term and long term, risk tolerance, time availability, and many other factors. Remember, no one among them is full-proof, nor any style is a failure. But here’s something we would suggest.
An investor should not put all his money in one style. He should allocate some portion to growth investment, some to value investing, and some to income investing. At last, if not anything, you will not be left with the regret of not choosing any particular style. And the best part is your risk would mitigate by it.
