Value Vs. Growth Index Funds

Value and growth index funds are two types of mutual funds that take a different approach to investment strategy. The goal for both strategies, however, is to take advantage of movements in the stock market to capitalize on the investment.

 

Value Funds

Value funds are invested in stocks believed to be undervalued but with growth potential. The idea is that buying these undervalued stocks will result in gains as the stock attains upward momentum in the future.

 

Risks of Value Funds

The risk in value funds is that the stock may not perform as expected in the short term and gains may not be realized until much later than expected by the investor. Value funds tend to carry less risk than growth index funds and may appeal to conservative investors.

 

Growth Index Funds

Growth index funds invest in stocks of expanding companies whose fast growth is attracting investor attention. Investors capitalize on these fast-growing companies as the price of the stock moves upward.

 

Risks of Growth Index Funds

However, if momentum slows, so does the chance to capture value from the stock. Because of the inherent volatility of growth funds, they are more risky and typically for aggressive investors.

 

Blended Funds

Blended funds attempt to balance the benefits of value funds and growth funds by investing in both. As a result, it is difficult to determine whether they are risky or not. Looking at the specific holdings of a blended fund lends insight into whether the risk is suitable for investor tastes.