Stock Market tips

Over time, you’re likely to buy a mix of both types of stocks
for your portfolio, so knowing the different characteristics of
each is important. Understanding growth and value stocks
can help you evaluate your options more carefully.

Growth companies are typically organizations with a positive
outlook for expansion and, ultimately, stock prices that move
upward. Investors looking for growth companies usually are
willing to pay a higher price for stocks that have consistently
produced higher profits because they’re betting the companies
will continue to perform well in the future.

Because they use their money to invest in future growth,
growth companies are less likely to pay dividends than other,
more conservative companies; when they do pay dividends,
the amounts tend to be lower. An investor who buys a growth
stock believes that, according to analysis of the company’s
history and statistics, the company is likely to continue to
produce strong earnings and is therefore worth its higher
price.

The stock of a growth company is, however, somewhat riskier
because the price tends to react to negative company news
and short-term changes in the market. Also, the company
may not continue to produce earnings that are worth its
higher price.

In contrast, value stocks are out of favor, left on the shelf by
investors who are busy reaching for more expensive and
trendier items. For that reason, you spend fewer dollars to
buy a dollar of their profits than if you invest in a growth
stock. When investors buy value stocks, they’re betting that
they’re actually buying a turn-around-story — with a happy
ending down the road.

Value companies carry risk, too, because they may never
reach what investors believe is their true potential. Optimism
doesn’t always pay off in profits