 Personal Finance PowerPoint Presentation, Income Value and Growth Stocks. Prepare to get financially fit by practicing personal finance. Most of this information is from Investopedia, Income Value and Growth Stocks, which you can find online. Take a look at the references, resources, continue your research from there. This by Mark P. Cussin updated October 28th, 2021 in prior presentations. We've been looking at investment goals, investment strategies, investment tools, keeping in mind the two main categories of investments, fixed income, typically bonds, stocks or equities. When we're thinking about investment in general, we wanna think about our overall strategy of investments, possibly using tools such as mutual funds and ETFs, which we have talked about in the past, keeping those in mind. We're now looking at income, value and growth stocks. Investors who buy stocks typically do so for one of two reasons. They believe that the price will rise and allow them to sell the stock at a profit or they intend to collect the dividends paid on the stock as investment income. When we invest in stock, we're investing in essence in an ownership in the company. We're expecting, of course, a return. That's why we're making the investment. What form will that return take? Well, if you're looking at companies that are typically growing, if they're in a growth spurt, you would expect those returns not to be so much as money coming out in the form of dividends because those companies are usually collecting money in order to grow, to build more factories, to get more equipment so that they can grow the value of the stock. In that case, you're typically hoping that the value of the stock increases and you can sell the stock for a larger dollar amount in the future. On the other hand, if you're investing in established stocks, then you might be looking for the fixed income type of thing. Those are usually the bigger companies that are already established. They don't need to build a lot more infrastructure because it's already built and therefore the earnings that they have might be distributed out more in the form of dividends, the other form of income. So, of course, some stocks can satisfy both objectives at least to some extent, but most stocks can be classified into one of three categories, growth, income, or value. So, those who understand the characteristics of each type of stock can use this knowledge to grow their portfolios more efficiently. It can also be useful to think about our targets. Oftentimes, we think about retirement plan as one of the major targets and as we get closer to the retirement, we might have a balancing of our portfolio so that we have different strategies for the different time horizons as we get closer to that end point, closer to the retirement point, typically at retirement, we're looking for more of those kind of stocks that have possibly income streams so that we can live on the income streams. Typically, when we're growing the portfolio, we might be looking for those companies that are more likely to grow by reinvesting the dividends. So, growth stocks or reinvesting their income instead of paying them out in the form of dividends. Growth stocks, as the name implies, growth companies by definition are those that have substantial potential for growth in the foreseeable future. So, that means that we hope that the price of their stock will go up because they're growing, they're probably not gonna be given out as many dividends because they want to generate the capital to help them grow, to help them to buy assets, factories, machinery, equipment so that they can generate more revenue in the future. Growth companies may currently be growing at a faster rate than the overall markets and they often devote most of their current revenue towards further expansion, meaning no dividends because they're putting it into the company or at least smaller dividends, you would think. Every sector of the market has growth companies but they are more prevalent in some areas such as technology, alternative energy, and biotechnology. Most growth stocks tend to be newer companies with innovative products that are expected to make a big impact on the market in the future but there are exceptions. So clearly, if you're looking at the newer companies, of course, they're growing. That's what they're doing at that point in time. If they have some kind of new product or innovation they're trying to invest in order to capitalize on that information. So, some growth companies are simply very well run entities with good business bottles that have capitalized on the demand for their products. Growth stocks can provide substantial returns on capital but many of them are smaller, less stable companies that may also experience severe price declines. So, one of the issues with growth stocks is that you would like to be picking the winners with growth stocks and the ones that actually make it from a growth position to a substantial mature kind of position are not all of them, of course. So, you've got more risk, typically that's going to be involved as well. Bigger potential for gain, more risk involved with it as well. An example of a growth company, Amazon.com Incorporated, this net juggernaut continues to add features, open new markets and take customers from other retail oriented companies. As of October 22nd, 2021, the trailing PE price earnings of 58 reflected this astounding growth potential compared to the SP500 trailing PE ratio of 26.9. Value stock undervalued companies can often provide long-term profits for those who do their homework. So, now we're looking at companies that we believe are not valued properly, the market price not reflecting the true value of the underlying fundamentals of the stock which could lead to potential once those values are recognized hopefully and the future resulting in increases in the price. So, a value stock trade at a price below where it appears it should be based on its financial status and technical trading indicators. It may have high dividend payout ratios or low financial ratios such as price to book or price earnings ratios. The stock price may also have dropped due to public perception regarding factors that have little to do with the company's current operations. So, for example, the stock price of well-run, financially sound company may drop substantially for a short time period if the company's CEO becomes embroiled in a serious personal scandal. So, oftentimes when we look at these big companies, publicly traded companies, the CEO becomes the face of the company. So, if the CEO has a problem, some public scandal, oftentimes that will decrease the stock price because people will perceive that to be the company in and of itself. But you would think if there was a properly structured leadership team that if you lost the CEO, the company's fundamentals would sustain as long as they could find good leadership. But that interplay between finding good leadership can be a difficult one because the leadership is important. So, smart investors know that this may be a good time to buy the stock as there is a chance that the public will eventually forget about the incident and the price will possibly revert to its previous level. Of course, the definition of what exactly is a good value for a given stock is somewhat subject to a various according to the investor's philosophy and point of view. Value stocks are typically considered to carry less risk than growth stocks because they are usually those of larger, more established companies. However, their prices do not always return to their previous high levels as expected. Income stocks. So investors look to income stocks to bolster their fixed income portfolios with dividend yields that typically exceed those of guaranteed instruments such as treasury securities or CDs. When we're looking at our investments horizon, when we get closer to retirement for typical individual investors, they might be looking more to income stocks because they might be wanting at that point to be living off of the income of their investments. That means they would like to have bonds to give them fixed returns, CDs that give them out returns and hopefully the dividend stocks, oftentimes giving higher returns than you might get in other more secure, less risk investments like treasury securities and CDs. So there are two main types of the income stocks. Utilities stocks are common stocks that have historically remained fairly stable in price but usually pay competitive dividends. So that would be the utilities, one kind of place you can go. You're usually looking at those bigger, more established companies that have already gone through the growth position and are now marching along at a well-established position able to take the revenue and not needing to reinvest it to build more phone lines or energy plants or anything but pay it out in the form of dividends. Also note that when you're looking at these categories you might be able to get exposure to a broader range of these categories by buying say mutual funds or index funds that are kind of categorizing these areas to further diversify by category, betting say on the market instead of on like an individual stock for example. Preferred stock are hybrid securities that behave more like bonds than stocks. They often have a cull or features or other characteristics but also pay competitive yields. Although high income stock can be an attractive alternative for investors unwilling to risk their principal their values can decline when interest rates rise. So one good example of a good income stock is AT&TT, the ticker symbol. The company is financially sound, carries a reasonable amount of debt and pays an annual dividend yield of 8.16% as of October 22nd, 2021. How to find stocks in these categories. So there is no one right way to discover specific types of stock. Those who want growth can peruse investing websites or bulletin boards for lists of growth companies then do their own homework on them. Many analysts also publish blogs and newsletters that tout stocks on each of the three categories. Investors looking for income can calculate the dividend yield on common and preferred offerings and then evaluate the amount of risk in the security. So we'll talk about some of those calculations, the dividend yield and future presentations I believe. There are also stock screening programs available that investors can use to search for stocks according to specific criteria, such as dividend yields or financial ratio. So what's the bottom line? Stocks can provide a return on capital from future growth, current undervaluation or dividend income. Many stocks such as AT&T offer some combination of these and smart investors know that dividends can make a substantial difference in the total return they receive. So again, note when you're looking at these categories, you wanna align that up with your investment goals, with your investment strategies, possibly changing as you get closer to the event horizon, possibly closer to your goal, save retirement. And you might be using tools as well that help rebalance such as mutual funds, ETFs for example.