Explaining the key differences in the two investing strategies


Are you a value investor or a growth investor? Vanguard investing expert Frank Chism outlines the differences between these two investment approaches and why you should consider applying both approaches to your investing strategy.

Notes:
All investing is subject to risk, including the possible loss of the money you invest. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.
This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.
Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor.
© 2016 The Vanguard Group, Inc. All rights reserved.  


TRANSCRIPT

Jon Cleborne: So we’ve talked about this. A couple of times we’ve used these terms like value and growth. Can you guys just define that a little bit? And, Frank, I just look to you.

Frank Chism: Sure.

Jon Cleborne: Help folks understand when we say value companies versus growth companies, what are we talking about?

Frank Chism: Yes, so what we’re talking about is how do you characterize a company? And there’s a couple different ways to think about it. For me, I think about it in terms of the maturity of the company. So a growth company is generally going to be a company that is trying to get bigger. They’re trying to expand. Starbucks is a good example. Not today, but a handful of years ago. They were expanding, they were growing, they were adding shops everywhere. Now there’s one practically everywhere so I cease to call them so much of a growth name, but the idea is they’re growing. So when they earn more money, they put that back in the business. They try to grow more. They’re not paying dividends necessarily. And most investors in growth names, the return you’re going to get is in the stock price appreciation because you’re not going to get a dividend. You’re going to benefit with the company gets bigger and bigger. So if you looked at a growth index, you would see Apple, Google, Facebook, Amazon. These are big companies that are really working to get bigger and bigger and bigger. If you look on the value side, these are companies that are a little more mature. Their market share is probably a little closer to where it’s ultimately going to be. They tend to pay dividends. They tend to have a little slower revenue growth, and there you’re going to see companies Johnson & Johnson, GE, Microsoft, companies been around a long time been doing business. And what investors try to do is if you think that we’re in a growth environment and everything’s going to expand and companies that are growing are going to do better, then people tend to favor growth. And if you think times are going to maybe get tough, then people tend to favor value and more defensive companies and companies have been around, their revenue is a little more stable. And I think to Bryan’s point what we really try to do is we want you to have all of those things because it’s very difficult to know when is growth going to do well, when is value going to do well? And, really, from our point of view, you should really cover both of those. But, in essence, that’s the sort of, you know, if you could keep those kind of names in mind, that’s a good way to think about growth value.

Important information
All investing is subject to risk, including the possible loss of the money you invest. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.
This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.
Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor.
© 2016 The Vanguard Group, Inc. All rights reserved.