Should I Invest In Dividend Or Growth Stocks?

To someone learning how to invest in the stock market, the amount of options you have can be somewhat overwhelming. Stocks, bonds, annuities, options, forex, ETFs. It can all be a little too much to think about.

I’m going to take a little time to go over the most popular investment vehicle that most investors choose, stocks. In my opinion, there are three directions you can head in when it comes to stocks. You are either investing for growth, income, or a combination of the two. Let’s clearly define them before I move on.

Growth Stocks: Growth stocks are shares in a company that is expected to grow at a faster pace than the market. Growth stocks typically do not want to pay a dividend to its share holders. This is because they would much rather invest that money into future projects, products or services to grow the company. This, in turn, increases its share value.

Income Stocks: An income stock is a stock that pays dividends. For the most part, income stocks are companies that have already established themselves as a profitable business. Instead of investing all their excess capital into future products or projects, they may take a certain amount, usually issued per share, and grant it to shareholders in the form of cash.

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So why should I invest in growth stocks?

Before I explain why you should be investing in growth stocks, let’s make something clear. Growth investing is NOT value investing. Value investors may be looking to find that diamond in the rough(a company that is priced below its intrinsic value). Whereas growth investors are far less concerned about a stocks current price as they are its potential future.

A prime example of people taking advantage of growth investing was the dot-com boom. I won’t go over the logistics of why most were digging their investment portfolios an early grave. But it’s an example nonetheless.

Growth stocks have the potential to provide better than average market returns to an investor if they are good at picking them. Growth stocks tend to be a riskier investment. This is due to the fact that you are investing in a company that needs to do the right things in order to realize that growth.