Go B.I.G. or Go Home

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What do you want?

In an article last week, I gave you a primer on technical analysis for evaluating which stocks are winners. But choosing investments isn’t all about the numbers— you’ll also need to do a little soul-searching in order to figure out the best investing strategy for you.

You’re going to need to ask yourself, "Self: what do you, I, we want?"

Yes, these are the kind of existential questions investors need to ask themselves before jumping into the market. So, what do you want? Are you looking for a bigger nest egg for retirement? To fund a project you foresee happening ten years down the line? To buy your first home? Are you looking to turn investing into an income stream? Do you want a bigger closet?

Your answers to these questions can, and should, impact your investing strategy; specifically, how you allocate your money between investments in companies known as “value stocks” versus companies known as “growth stocks.”

Growth vs. Value

Growth stocks are companies that investors feel have a lot of promise to grow (duh). But because of that, growth companies may not be making a lot of money… yet. Typically when a company is on a growth trajectory, it may not be earning a lot of money right this very second—but investors aren’t investing in the company for what it is now, investors are investing in what they think the company will become. What that also means is that the company may not yet have proven itself to be super profitable. Because of that, growth stocks tend to be considered higher risk, higher reward: if investors are right and the company grows into a big player, they’ll reap the rewards. If investors are wrong and the company crumbles, they could lose it all. Growth stocks tend to be new companies, and/or in the tech sector.

Value stocks (also known as blue chip stocks) are companies that show consistent earnings, and have shown themselves to be profitable. In contrast to growth stocks, value stocks tend to be older companies, and/or companies that exist in very stable markets. But stability is a double-edged sword: although it means lower risk of dramatic losses, it also means lower chance of exciting, dramatic gains. Whether you want to go for a slow and steady strategy, or a high risk-high reward strategy is up to you and your goals, and, of course, your risk tolerance.

My two cents?

When you do make your investment plan, think big. And when I say big, I mean B.I.G.— which is my acronym cheat-sheet for a good diversified portfolio: Blue chip companies, Index funds and Growth stocks. Depending on your risk tolerance and goals, you can decide what sort of mix of these stocks work best for you. But a combination of all three is a mix that is sure to grant you the kind of diversified portfolio that protects you from risk, and moves you along on the road to financial freedom.

xo,

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