To a large extent, more risk is the price you pay to pursue greater returns. However, if you're investing for the long-term and want to emphasize stocks in your portfolio, you may still help lessen volatility by diversifying with different types of stocks. Specifically, you can include both major styles of stock investing, growth and value. Growth Stocks Growth managers generally look for companies that have demonstrated records of above-average growth. They believe the growth rates of these companies will allow them to outperform the stock market over time.
Growth stocks tend to carry high price tags relative to what they are currently earning.
The market is willing to pay more for them because they are leading companies with the potential for powerful, consistent earnings growth, and may therefore be worth considerably more in the future. The job of growth stock managers is to determine if a stock's price is justified, based on the company's potential for expansion. Value Stocks Value managers look for stocks that are bargains based upon certain valuation criteria. They believe that the true value of a stock is not reflected in its price, and, over time, its price will increase faster than stocks that are fully-priced. In general, the value style can be a more conservative approach to stock selection.