Here, we look at five common investing styles, which one is right for you?
Growth Investing – Growth investors look for companies that exhibit signs of above-average growth, through high earnings growth rates, high return on equity and high profit margins. Growth stocks tend to have high price-to-earnings or price-to-book ratios as investors pay a premium for the potential of higher returns.
Because these stocks are expensive and usually pay little or no dividends, they tend to be more risky.
Value Investing – Value investors look for mature companies with out-of-favor or undervalued stocks that are cheaper than they should be. Value stocks tend to have low price to earnings ratio, low price to sales ratio, and generally a higher dividend yield.
Because these stocks are ‘cheaper’ and have higher dividend yields, they can be supportive in a recession.
Index Investing – Indexers create portfolios that mirrors a particular market index in terms of securities and weights.
Because they are just buying the market, their portfolio does as good or bad as the market.
Income Investing – Income investors look for companies that have a long history of paying dividends to shareholders. These stocks are characterised by high dividend yield.
Because of the regular dividend income, they tend to be favoured by investors who seek regular income in addition to some capital gains.
Size (Market Cap) Investing – This investors use the size of a company based on market capitalisation as the basis for investing. Some investors tilt toward small-cap stocks, some large-cap stocks and some invest in mid-cap stocks.
Small-cap investors favor those stocks because they expect this smalll companies have greater room for growth. the potential for greater returns in small caps comes with greater risk.
Large-cap investors on the hand favor seek the stocks of big mature copanies. They tend to have been to be more stabe