Growth vs. Value ETF (Which One Is Better? Important Facts)

Growth vs. Value ETF (Which One Is Better? Important Facts)

If you're into Exchange-traded Funds or ETFs, you may feel torn in choosing between Growth and Value ETFs. These two broad categories are usually the ones that make up the pillars of our decision. So you may wonder which one should you choose.

Thus, you may ask: Which one is better, Growth or Value ETF? Both the growth and value ETFs have their own strong and weak points. Value ETFs look to invest in stocks considered undervalued. On the other hand, growth ETFs focus on faster-growing and often more volatile stocks. Since they are opposites of each other, it would depend on your preference.

True enough, both ETFs can yield more returns than the stock market. However, which is better lies more on your goals, preferences, and other factors.

In this article, we'll cover everything you need to know about these two kinds of ETFs. This way, you can have an idea which better suits your goals and preferences.

Without further ado, let's get into it!

What is the difference between a growth fund and a value fund?

Both the Growth and Value ETFs play an essential role in any investor's portfolio. However, these two come in complete opposite to each other.

For instance, Growth ETFs are the kind that focuses on a basket of stocks whose companies have the potential for rapid growth.

It comes as the complete opposite of stocks with undervalued prices. Growth companies in such funds include the tech giant Microsoft Corp.

On the other hand, Value ETFs allow investors to buy baskets of value stocks with a single investment. These are the stocks with undervalued prices. Thus, they tend to come with lesser risks.

In general, Value ETFs come with slow returns but are also less volatile. On the other hand, growth ETFs have higher returns but can be a bit riskier due to their volatility.

For this reason, the choice between the two primarily boils down to personal risk tolerance.

While growth ETFs may have higher long-term returns, they come with more risk. On the other hand, Value ETFs may hold their value better in volatile markets. However, they can come with less growth potential.

Are growth or value funds better?

In general, growth stocks may outperform the overall market over time. It's all due to their growth potential.

Still, value stocks tend to trade below what they worth. Nevertheless, they come with more stability and security than the growth stocks.

In theory, the latter would have a better and more stable outcome, though it also needs a long time.

Where should you invest your money - growth or value ETFs?

Growth and Value ETFs both have their ups and downsides. Thus, it can be quite hard to choose where you should invest your money.

For instance, growth ETFs generally invest in stocks that expect higher returns. However, these stocks are highly volatile, which means there are high chances for you to lose your assets as well.

On the other hand, Value ETFs invest in stocks at a lower price than they're worth. In such a way, the stocks are relatively stable. They may have lesser returns, but they are much less volatile than growth ETFs.

Of course, choosing between a value and growth ETF is only part of the decision-making process. It's also crucial to choose the right ETF.

What is the best growth ETF?

If you're planning to invest in Growth ETFs, you may want to consider the best. Below is a rundown of the best growth ETFs:

As always, remember that growth ETFs come with high volatility, which means it's quite risky. Thus, it would be best to proceed with caution.

What is the best value ETF?

If you're planning to invest in Value ETFs, you may want to consider the best. Below is a rundown of the best Value ETFs:

Value ETFs tend to be a lot more stable, but it can take some time to see returns. For this reason, you may want to invest on a long-term basis. In short, it would be best to prepare for a long process and lesser returns than what a growth ETF can give.

Summary

In general, we can say that both the Growth and Value ETFs offer different sets of benefits and downsides for every investor. If you plan on going for the Growth ETFs, you may enjoy higher returns but may experience higher risks of losing. On the other hand, Value ETFs may give you lesser returns but can be more stable.

If you find it hard to resist regular market fluctuations, it would be best to stick with a value ETF. Now, if you can take more volatility as a way to achieve above-average returns, you may prefer growth ETFs. Aside from this choice, it's also crucial to choose the best ETF to suit your goals.


Published: 03/11/2021
Growth vs. Value ETF (Which One Is Better? Important Facts)
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