People with financial goals and money management know the significance of investment and trading.
Investment can help you grow your wealth and find a stable income for the future.
Stocks, mutual fund, bonds are the types of investments people fund for.
However, stock is the most sought after investment vehicle for aggressive investors. The reason is that stock market offers opportunity abundantly.
There is a space to grow your money as much as you wish to and as fast as your judgement allows you.
However, the stock market is full of risks which makes people sceptical about their money and such investment options.
The two main stocks are common stocks and preferential stocks. Apart from these, types of stocks are divided on the basis on size of the companies, location and style of the companies.
Based on size, we have large-cap, mid-cap and small-cap companies. Like wise, we have based on location and the type of industry the company is operating in.
Now, there are two more types of stocks that people invest in. It is classified based on style and are called Growth stocks and Value stocks.
What is growth stock?
Growth stocks are issued by the companies that have potential to grow quickly or are already growing on a fast pace.
People invest in growth stock with a vision of greater return. Investors pay more for this stock because of the possible spike in returns.
However, growth stocks are risky ventures with great possibilities of wealth. Therefore, it is not for the people who dodge risks and restrain uncertain investments.
People who are enthusiasts and aggressive with their money are fit to such investment ventures.
Growth stocks have a tendency to not offer any dividend at all.
The reason is that most of these companies are unique in operation.
That is, they offer products and services that is uncommon to the market which evidently increases their possibilities of growing among consumers as well as investors.
This inspires the company to keep on generating good services and attract more loyal customers.
Thus, all the revenues incurred in the company is invested back into the assets instead of distributing it among the investors as dividends.
This feature makes growth stocks a risky venture. That is because whatever revenue an investor earns is from the trading of their stocks. They receive nothing from the company as appraisal.
Since growth stocks don’t offer any dividends to the investors, there is no capital appraisal in the short run for these people.
Growth stocks offer nothing in the short run, however, investors experience high returns from the companies’ exorbitant revenues eventually.
What is value stock?
Value stocks are undermined stocks that investors purchase with a hope of inducement in the share price in the near future.
These stocks are the share of a company that are traded at a lower price than that of its actual value.
Stock market is a sensitive platform that reacts to any news in the market. This can sometimes cause a rise and fall in the value of stocks.
When the stocks of a company are traded at relatively low price than the companies’ intrinsic value, it is called value stock.
People invest in such stocks with a hope that the value of these stocks will eventually rise returning high profits.
It is easy to identify value stocks in the market as the investors are usually ready to bargain while trading such stocks.
An investor identifies such stocks and buys them at an undervalue. After this, they wait for the time when the value of stock rises so that they can sell it on high prices.
This helps them yield high returns on the purchased stock.
However, a new investor should restrain themselves from trading such stocks as it need good analysis and risk appetite.
Investors who have been trading for a long time and are good at analysing the market and its fluctuations prefer trading in value stock the most.
Trading in value stocks mean buying at a low price and selling at a higher price.
Value stock again, offer long-term profit. They can yield high dividend payouts during the short run however they are supposed to extract higher returns than those of growth stocks in the long-run.
Growth stock vs value stock
Growth stock and value stock are two opposite concepts of stock market.
Where growth stocks are relatively exorbitant to buy, value stocks can be bought on discount or at a bargain price.
In most cases, growth stock are those companies that are small-cap and have potential to become a big profit earner due to their unique performance eventually.
On the other hand, value stocks are those companies that are well established and have firm hold in the market.
This is the reason that value stocks have strong dividend history which gives them the hope to recover their undervalued stocks.
Which is more prone to risks?
Both growth stock and value stock are potent risk bearers because of the potential revenue in future.
However, value stocks are considered to have large risk appetite. This is because the market has an undermining attitude towards such stocks.
There are possibilities that the price of the stock will increase and match the intrinsic value.
However, the uncertainties of the market makes it a possible stimulant in rate as well as a depressant.
The bottom line
Growth stocks are developing stocks with great financial value in coming future.
Value stocks are undervalued stocks that have potential to yield higher returns to the long-run.
Investors who are aggressive with their risk appetite include both types of stock in their trading list. Both have potential risks and wealth maximization properties.
Therefore, analyse your risk bearing capacities and market activity to choose the best option for you.