Most stocks are labeled either "growth" or "value" based on their valuation metrics such as P/E (price-to-earnings), price-to-book value or price-to-dividends. Growth stocks usually appear more expensive on present or past valuation metrics, and they are expected to grow faster. Value stocks tend to fall lower on the valuation metrics and usually are more stable than growth stocks in their performance.
Seeking Alpha warns that even if you select a stock based on its current performance or low valuation metrics, it is not necessarily a high value. Major index providers, such as S&P, have constructed indexes representing growth and value stocks in all market capitalization areas. Naturally, there are ETFs that represent all of those corresponding indexes.
How many growth and value ETFs do you want to use in your portfolio? The advantage of having fewer ETFs or a total market ETF is that it’s less for you to follow and manage. However, having more ETFs to manage gives you the capability to rebalance your portfolio. Rebalancing your portfolio regularly can help ensure it’s in line with your financial goals.
Another advantage of growth and value ETFs is that you can over-weight the more stable value ETFs. Or, if you go with a total market ETF, you can add smaller holdings to the value ETFs. For a list of growth and value ETFs and a list of suggestions in constructing your portfolio, check out the Seeking Alpha article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.