Growth vs value investing: which is right for an informed investor?

January 11, 20236 min read
Growth vs value investing: which is right for an informed investor?
Share on facebookShare on TwitterShare on Linkedin

Key Takeaways:

• Value stocks are equities trading at a price below which analysts consider to be their true worth.

• Growth stocks are those delivering better-than-average returns and are expected to continue to perform better than the market over time.

• While the two are generally looked upon as competing with one another they can actually be complementary in a diversified portfolio.

Investing styles can be divided into a pair of categories — value and growth. While the two are generally looked upon as competing with one another, they can actually be complementary in a diversified portfolio. The key is to find an optimal blend consistent with the achievement of an investor’s specific goals. 

Growth vs Value Stocks

Generally, growth stocks are equities that are delivering better-than-average returns and are expected to continue to perform better than the market over time. Meanwhile, value stocks are those that are believed to be trading for less than their worth, which gives them the potential to deliver an outstanding return on an investment. 

Growth stocks are usually those companies expect to do well in the future because demand for their products is expected to increase. Another reason these stocks might be considered to be poised for progress is the expertise of the company’s management team. Typically, growth stocks have a higher price than the market in general and boast strong earnings growth but are more volatile than the market as a whole. 

Value stocks are equities that are trading at a price below which analysts consider to be their true worth. This can happen for several different reasons, chief among them a temporary change in public perception of the company, its management team, or its key product(s). New companies, whose potential have yet to be recognized, can fall into this category as well. 

The traits of value equities include pricing lower than the market in general, and especially lower than that of similar companies in the field in which it is operating. Value equities also tend to carry less risk, although it might take some time for them to come to fruition. 

In a nutshell, value stocks are usually undervalued, have low PE ratios, and high dividend yields, but aren’t expected to appreciate significantly. Meanwhile, growth stocks are usually over valued, have above-average PE ratios, low or no dividend yields, and their volatility tends to be somewhat high.

Growth vs Value and the S&P 500

While the index does not have formal classifications for growth and value stocks, tech and consumer discretionary stocks, which comprise 40% of the S&P 500, tend to fit into the growth category. Financials, industrials, energy, and consumer staples, comprising 29% of the index, are characteristic of value-oriented equities. As an example, banks like JPMorgan Chase & Co. (NYSE:JPM) tend to fit in the value category, while a company like Google (NASDAQ:GOOG) fits solidly into the growth category.

Invest in Alternative Assets

Get consistent returns in times of market volatility.

Investing in Growth vs Value

Value investors can be likened to speculators, in that they are looking for stocks with low prices and great potential. Growth investors, on the other hand, tend to flock to stocks with strong performance histories. They are betting that a stock that is already performing admirably will continue to do so, which makes it an attractive investment in their eyes. 

Value stocks are considered to represent less of a risk because the companies behind them are usually well established. Moreover, the fact that they pay dividends and are expected to return capital growth also makes them desirable. 

Meanwhile, growth stocks usually reinvest earnings, rather than paying dividends, in an effort to expand the companies they support. This is one of the reasons growth stocks can be more of a risk, as there is always the possibility the level of growth achieved will fail to match up to expectations. 

As for which represents the better investment opportunity, the market tends to be cyclical in that regard. The Bull market that ran from 2009 to 2020 saw growth outperform value. However, value outperformed growth during the prior decade.

Generally, growth stocks tend to deliver better returns during periods within which interest rates are declining and company earnings are ascending. On the other hand, a cooling economy tends to affect these stocks first. Value stocks tend to be more cyclical and show stronger performance when the economy is in a period of recovery. Sustained bull markets tend to bog the performance of value stocks.

Growth vs Value and Diversification

Because the market is cyclical in general and particularly when it comes to the performance of growth vs value, it can be useful to invest in both equally. This gives a portfolio the ability to benefit from volatility, rather than being punished by it. 

With that said, the decision should ultimately be guided by the preferences, goals, risk tolerance and time horizons of the individual investor — keeping the cyclical nature of the market in mind.

Again, value stocks tend to shine in bear markets and recessions, while growth stocks perform better during bull markets and periods of expansion. Short-term investors, as well as those whose strategies are predicated upon market timing, would do well to take those factors into consideration. 

Diversification and Alternative Investments

Along with a healthy balance of growth and value oriented stocks, alternative investments can also be useful tools for portfolio diversification, which is generally agreed upon by experts to be a smart investment strategy to pursue. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.1

Real estate, private equity, venture capital, digital assets, and collectibles are among asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. 

These asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  Yieldstreet opens a number of investment strategies that were formerly available only to institutional investors and the top one percent of earners to all investors. 

The company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

The Bottom Line

To summarize, growth investors buy shares of a company with outsized growth potential. Meanwhile, value investors seek assets they believe to be undervalued by the market and that pay dividends. Again, though, while the two styles are generally looked upon as competing with one another, they can actually be complementary in a diversified portfolio. This can help position an investor to better weather periods of volatility. The key is to find a blend consistent with the achievement of an investor’s specific goals.

1 All investments involve risk, including the possible loss of capital.   There can be no assurance that any product or strategy described herein will achieve any targets or that there will be any return of capital. Past performance is not a guarantee or reliable indicator of future results. Current performance may be lower or higher than the past performance data quoted. Any historical returns, expected or target returns are hypothetical in nature and may not reflect actual future performance.  All performance and/or targets contained herein are subject to revision by Yieldstreet and are provided solely as a guide to current expectations.  

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022

844-943-5378

No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Plaid, Orum.io and Footprint and none of such entities is affiliated with Yieldstreet. By using the services offered by any of these entities you acknowledge and accept their respective disclosures and agreements, as applicable.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure