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Humanising Finance
October 2017
     

3 Approaches to Stock Investing

It's easy for investors to get excited by the enticing prospects of growing their wealth, especially when presented with a dizzying array of choices. However, in order to increase your chances of achieving your investment goals, it's critical to be well-informed and focus on certain key things such as total return and long-term investment goals.

There are two underlying beliefs for investors' decisions to buy certain stocks:

  1. They believe that the price will rise and they can then sell the stock at a profit, or
  2. They intend to collect the dividends paid on the stock as investment income.

Majority of the time, stocks can be classified into one of three categories: Growth, Value and Yield.

In order to strategise and grow your portfolio more efficiently, you should understand the characteristics of each type of stock to aid your choice in the approach that best suits your risk appetite.

 
 
1. Growth
Many investors associate growth stocks with companies whose earnings are expected to grow at an above-average rate relative to the market in the foreseeable future.
 
Instead of paying a dividend, these small to mid-capitalised companies often choose to reinvest retained earnings toward further expansion. While it may seem risky to choose stocks which may appear to be overvalued in terms of fundamentals, their potential profits in the future could justify their current valuation.

If you seek higher returns and can accept the risk of higher short-term volatility of stock prices, growth stocks might be for you.
 
 
2. Value
If you prefer price stability and have a longer investment horizon, look to value stocks.

A value stock tends to trade at a lower price compared to its fundamentals such as dividends, earnings and sales. It is thus considered undervalued by a value investor. Such stocks commonly include a high dividend yield, low price-to-book ratio, and/or low price-to-earnings ratio.

Hone in more on the present value of the company's assets rather than its future potential. Value stocks are typically found with well-established companies with solid track records and are hence considered more conservative.
 
 
3. Yield
If your aim is to gain a regular passive income from your investments, go for yield stocks.

Comprising mostly of companies that typically generate strong cash flow from their business, yield stocks offer consistent dividend pay-outs to their investors. Besides the potential of capital gain, dividend income could be another source of investment returns for investors.

Ultimately, you should do the necessary research and learn more about the different options before you decide on which stocks to invest in.
   
 
 
As of August 2017, Maybank Kim Eng's list of Growth, Value and Yield stocks have achieved an average return of 26% year-to-date, compared to an average return of 13.8% on the Straits Times Index.

Download the KE Trade mobile app here to access the full list of stocks and be alerted of any changes to the list via in-app notifications.

For more information, visit our website.
 
Always wanted to find out more about a finance-related issue? Email us at: corporateaffairs@maybank.com.sg
 
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