Growth Vs Value Stock: What To Consider When Buying
How can you determine what’s right for you?
Updated 
2 min. read
If you’re just coming to grips with different investing strategies, you might have heard about growth and value investing. But what is the difference? Johnathan Chevreau, financial expert and founder of the Financial Independence Hub, is here to explain how these strategies impact your portfolio, and when to use them.
What is the difference between growth and value investing?
Growth and value stocks are often times about risk tolerance and time horizon. Value stocks are undervalued according to their fundamentals, like their price-to-earnings ratio, which we’ll talk about later. This type of stock is typically issued by more established companies, and typically offers you greater stability. Growth stocks are typically a little riskier because you’re investing in the future and the chance that you’re getting in on the ground floor of the next big thing.
What are key metrics of growth and value investing?
As mentioned before, price-to-earnings ratio, or P/E, is an important metric for investors to understand. P/E is essentially the price of the stock divided by its earnings. Value stocks tend to have price-to-earnings ratios in the double digits, depending on just how undervalued they are. Growth stocks, on the other hand, can have a P/E of several hundred because they aren’t expected to see high returns in the short term.
How do I know which is right for me?
There’s no hard and fast rule, but as with most investing, a balanced portfolio is a good thing to keep in mind. As a younger investor, you may want to have a healthy amount of growth stocks in your portfolio, because you have a longer time horizon. Who knows — you could be buying into the next Google! But having stability in your portfolio is important, and a safeguard against those long term plays in case they don’t work out like you hope.
More mature investors, on the other hand, may want to be more value-focused for more immediate returns and solidity. You may still want some growth in there to outpace inflation, but the balance more than likely would shift towards value.
Different times in your life might call for different investment strategies. Savvy investors should make sure to understand when their portfolio needs adjustment, and that both growth and value have their respective places.
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