In this day and age, traditional investment strategies might not cut it
In investing in public securities, investors often traverse the tried and tested route of the blue-chip investing. However, over the past few decades, the industry has seen the rise of two other investing strategies: growth and value investing.
This has led to the traditional investing concept to be somewhat outdated, as days of guaranteed profitability have already ceased to exist. For advisors, it is important to discuss the two concepts with their clients.
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In a commentary on the Motley Fool Canada, industry expert Ryan Goldsman defined growth investing as buying shares in firms with above-average growth in yields and bottom line.
"There will be higher volatility and a higher expected rate of return to go along with it," he said.
One perfect example of an area where investors can use such strategy is the marijuana industry. For starters, shares of the Canopy Growth have seen an upside potential, with returns reaching as high as 105%. Its rival MedReleaf Corp, which recently concluded its public offering this year, has already seen 50% growth.
"With such fantastic results, the truth is that growth investors will not be able to achieve these returns every single year," Goldsman said.
He stressed it would take around 18 years for investors to reach the millionaire status, assuming a return of 20% in four out of five years and a 20% decline every fifth year. This is also with the assumption that investors are adding in $10,000 in new contributions yearly.
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On the other hand, value investing is a strategy that involves injecting assets into firms which are believed to be undervalued.
With the same assumptions mentioned earlier, hitting the millionaire mark may take as long as 22 years.
"Although shares of all companies, including the most defensive, will correct from time to time, it must be understood that value companies will recover faster and continue to raise their dividends during the most difficult of times," Goldsman said.
One stock which value investors have to consider is that of TD Bank. It has performed well in the past and is currently expanding at a rapid pace south of the border, Goldsman said.
"With steady, re-occurring revenues and many segments which will add to the bottom line throughout the business cycle, shares of this Canadian juggernaut may be too good to pass up," he explained.
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This has led to the traditional investing concept to be somewhat outdated, as days of guaranteed profitability have already ceased to exist. For advisors, it is important to discuss the two concepts with their clients.
Also Read: Is now the time to avoid financials?
In a commentary on the Motley Fool Canada, industry expert Ryan Goldsman defined growth investing as buying shares in firms with above-average growth in yields and bottom line.
"There will be higher volatility and a higher expected rate of return to go along with it," he said.
One perfect example of an area where investors can use such strategy is the marijuana industry. For starters, shares of the Canopy Growth have seen an upside potential, with returns reaching as high as 105%. Its rival MedReleaf Corp, which recently concluded its public offering this year, has already seen 50% growth.
"With such fantastic results, the truth is that growth investors will not be able to achieve these returns every single year," Goldsman said.
He stressed it would take around 18 years for investors to reach the millionaire status, assuming a return of 20% in four out of five years and a 20% decline every fifth year. This is also with the assumption that investors are adding in $10,000 in new contributions yearly.
Also Read: How rising protectionism could impact stocks
On the other hand, value investing is a strategy that involves injecting assets into firms which are believed to be undervalued.
With the same assumptions mentioned earlier, hitting the millionaire mark may take as long as 22 years.
"Although shares of all companies, including the most defensive, will correct from time to time, it must be understood that value companies will recover faster and continue to raise their dividends during the most difficult of times," Goldsman said.
One stock which value investors have to consider is that of TD Bank. It has performed well in the past and is currently expanding at a rapid pace south of the border, Goldsman said.
"With steady, re-occurring revenues and many segments which will add to the bottom line throughout the business cycle, shares of this Canadian juggernaut may be too good to pass up," he explained.
Related stories:
What’s next for interest rates in Canada?
Three factors driving the current bull cycle
