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Value Vs Growth...?

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Now, I know this question isn't specifically about 403bs, but my 403b is the vehicle that I will be using to invest in these funds. So I hope that I'm not upsetting anyone with this somewhat off-topic post.


What is the difference between a mutual fund that is classified as a Growth Fund and one that is classified as a Value Fund?


I've been trying to do some research on getting into some higher risk funds such as Small-Cap stuff and possibly international emerging market stuff. I see the 9-square style box on a lot of funds, but I don't know what the categories mean.


The small-caps for Vanguard are broken down into several funds:

Small Cap Growth Index

Small Cap Index Fund (Blend Fund, I think)

Small Cap Value Index

Small Cap Tax-Managed (this I have no idea about)


Which is better?

My wife and I are both 30 years old, so we have a lot of time to invest.

We don't have any kids yet, so we have a fair amount of $$$ to put away (at least right now we do.)


Thanks for your help!



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Guest Chuck Yanikoski

The typical definition of a "Growth" fund would be something like: "seeks long-term growth in principal, with little regard to current income, and may be composed mostly of non-dividend-paying stocks." For "Value" funds it would be something like: "seeks long-term asset growth and relative safety of principal by focusing on stocks that are considered to be of solid value though perhaps currently under-priced."


Clearly these definitions are far from antithetical, and indeed the portfolios of two such funds could easily have a lot of overlap. In practice, the main difference is that a "Growth" fund is likely to be riskier. Such funds often invest primarily or exclusively in non-dividend paying stocks, which often means smaller or riskier companies, or companies that are expanding quickly (which can often mean over-expanding and headed for disaster). "Value" funds, in practice, are mainly looking for stocks that are solid but out of favor with the public or the investment community for some reason or other. Oftentimes these can be old, well-established, dividend-paying, and not particularly risky companies -- who are out of favor sometimes exactly because of those characteristics!


To put it another way, while both kinds of funds are looking for better-than-average asset growth, "Growth" funds are mainly trying to do it by investing in newer, faster-growing, often riskier enterprises, while "Value" funds are trying to do it by finding bargains among stocks that the fund managers think are under-priced.


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