An Introduction to Growth, Value, and Income Investing
Question: What methods can I use to approach investing to achieve the best possible results?
Like many things in life, you need to have a plan before actioning a task. Without a plan, you may find yourself working aimlessly towards something and possibly making no progress. Investing works the same way. It would help if you had a strategy on how you want to grow your money. Different investment goals will need different strategies applied. Investment strategies are principles that guide investment choices and help investors manage their risk. Although there are many, I have highlighted three that are great for beginners to understand.
Growth investing, applied for a more active attempt to build up your portfolio, is a strategy that centers on choosing stocks that have significant growth potential. Suppose investors believe that a company will grow in the coming years and the intrinsic value of a stock will go up. In that case, they will invest in such companies. In other words, growth investors want stocks they can sell for profit later. You can identify growth stocks by looking at these characteristics:
• Higher priced than the market.
• High earnings growth records regardless of the economic conditions
• More volatile than the market
The value investing strategy involves investing in the company by looking at its intrinsic value - stocks that investors and the market underappreciate. The idea behind investing in such companies is that there is hope that the stock price will rise as more people come to appreciate the company's actual intrinsic value. As the prices go back up, investors are left with high returns when they sell. Characteristics that you want to look for are
• Companies that are underappreciated but still have good fundamentals
• Lower priced than the market
• Priced below similar companies in the industry
• Carry somewhat less risk than the market
Income investing strategy refers to owning assets such as stocks, bonds, mutual funds, and real estate to generate the highest possible cash income at the lowest possible risk. Suppose you are an investor who wants to focus on generating regular cash income from stocks rather than investing in stocks that only increase the value of your portfolio. In that case, this may be the best strategy for you.
Investing can be one of the best decisions for yourself, but getting started can be challenging. Investing strategies are all different. Growth and value investing may be better for long-term goals. Income investing may be better for short-term goals. When picking a strategy, choose the one that will simplify your process. Then as you become more experienced, you can expand on other methods.
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