Welcome to professorsavings.com, we teach finance basics. Today we will teach you how to pick your investing style.
There are many ways to approach investing.
We’ll look at three of the most common, value investing, growth investing and income investing.
One, value investing, value investors look at investing in stocks as buying a piece of a company. They measure a company’s underlying value by analyzing the company’s fundamentals as reported in its annual and quarterly reports.
When value investors determine that a stock is priced below its underlying value, they see this as a buying opportunity. Value investors expect that these undervalued stocks will eventually rise in price to reflect their true value.
Two, growth investing, growth investors don’t care whether a stock is trading at a price that is higher than its underlying value as long as the price is increasing.
They buy stocks in companies with growing earnings at a stock price that is expected to increase at a faster rate relative to its industry or the market.
They hope to profit from the capital gains they lock in when they sell a stock for much more than they pay you.
Three income investing, income investors make their money by owning stocks at established, profitable companies that have a history of paying dividends. The average dividend of an S&P 500 stocks is 2% to 3% of the share price.
An income investor will look for a dividend of at least 5% to 6% of the share price.
Income investors must still be careful to choose stocks with strong fundamentals because if the company starts losing money, the dividend could be cut.
There is no rule in investing saying you must pick one approach and stick to it. In most cases investing…