Value vs. Growth ETFs: How Do You Choose? (2024)

FAQs

Value vs. Growth ETFs: How Do You Choose? ›

The choice to focus on either value ETFs or growth ETFs comes down to personal risk tolerance. Growth ETFs may have higher long-term returns but come with more risk. Value ETFs are more conservative; they may perform better in volatile markets but can come with less potential for growth.

For example, value stocks tend to outperform during bear markets and economic recessions, while growth stocks tend to excel during bull markets or periods of economic expansion. This factor should, therefore, be taken into account by shorter-term investors or those seeking to time the markets.

Criteria for choosing the best ETFs for long-term investing include: High assets under management: Growth ETFs with the highest AUM tend to have higher trading volume, which generally translates to higher liquidity and superior pricing through lower bid/offer spreads.

Some studies show that value investing has outperformed growth over extended periods of time on a value-adjusted basis. Value investors argue that a short-term focus can often push stock prices to low levels, which creates great buying opportunities for value investors.

Typically, growth stocks boast higher-than-average valuations. You can check a stock's valuation by looking at price-to-earnings (P/E) and price-to-book value (P/B) ratios. Conversely, value funds look for companies with a lower P/E ratio when compared to their competitors.

Regarding risk, VOOG is generally considered riskier since you are investing in growth companies with higher volatility. However, these growth companies are in the S&P 500, eliminating some risk levels. Another key difference is expenses; VOO has a significantly lower expense ratio and is more diversified than VOOG.

Additionally, value funds don't emphasize growth above all, so even if the stock doesn't appreciate, investors typically benefit from dividend payments. Value stocks have more limited upside potential and, therefore, can be safer investments than growth stocks.

The choice to focus on either value ETFs or growth ETFs comes down to personal risk tolerance. Growth ETFs may have higher long-term returns but come with more risk. Value ETFs are more conservative; they may perform better in volatile markets but can come with less potential for growth.

Among large-cap growth ETFs, the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) are known for being strong proxies for the technology sector. That's because those funds allocate almost half their respective rosters to that group.

VIG and SCHD are both dividend ETFs; however, there are some differences that may make one more suitable for an investor compared to the other. For example, VIT focuses on dividend growth while SCHD focuses on high dividend yields.

Is the S&P 500 more growth or value? ›

34% of "growth stocks" in the S&P500 growth index have growth rates than are lower than the median growth of value stocks, and 35% of "value" stocks have growth rates higher than the median growth stocks.

Disadvantages of investing in growth funds

Higher volatility: Growth funds tend to exhibit higher volatility compared to debt funds, as they invest in equity of companies with higher growth potential, which may also be more susceptible to market fluctuations.

Based on consensus earnings in 2024, the MSCI World Growth Index is trading at 27 times its profits, almost twice the price-to-earnings multiple of the 14x for the Value Index. But growth has also grown earnings about three times faster, by 15% versus 5%.

Value investing has been used by many investors, in conjunction with other investment considerations, to profit over long periods. Is value investing still relevant? Yes—and here are some tips on how to do it successfully: Value stocks are generally good bargains, but not all bargain stocks offer good value.

The value score is subtracted from the growth score. If the result is strongly negative, the stock's style is value; if the result is strongly positive, the stock is classified as growth. If the scores for value and growth are not substantially different, the stock is classified as 'core'.

The companies in a growth fund portfolio register higher earnings and market growth, while those in a value fund portfolio are likely to show a lower sales and earnings but give out higher dividends. Because of the lower cost of the stocks that are part of a value fund, it may be cheaper to buy than a growth fund.

Growth stocks generally perform better during bull markets, when interest rates are falling, and when corporate earnings are trending up. However, during economic slowdowns, growth tends to lag behind value. Similarly, value tends to outperform growth during bear markets and in the early stages of economic recovery.

Growth at a reasonable price (GARP) is an equity investment strategy that combines growth and value investing attributes. GARP investors focus on companies with earnings growth above broad market levels but without extremely high valuations.

Many investors use price targets to determine when to sell a stock. Investors that use the strategy typically will determine a price range for when to sell the stock at the time of purchase. As a stock price rises, investors can begin selling the position once it reaches the price target range.