Investing Strategies
There are two main investing types in the stock market: dividend investing, and growth investing. Both of them have their advantages and disadvantages. Choosing which way is more suitable for you should be based on your investment horizon, risk tolerance and investing goals.
Value.
Coca-Cola, Bank of America, and Walmart are examples of strong dividend-paying traditional companies. They are huge companies that have been around for a long time. For example, Coca-Cola is everywhere. If you go to any restaurant or grocery shop anywhere in the world - chances are they will have Coca Cola drinks available. It's one of the most powerful brand names in the world. It shares the profits with their shareholders as it has limited ways to grow its operation any further because it's already a very big and established company that has pretty much saturated the market. However, because Coca Cola generates a ton of cash and doesn't need to reinvest all of it back into itself in order to grow further, it rewards the shareholders by paying them dividends every quarter. Coca-Cola has been paying out dividends for 58 years straight, constantly growing its dividend overtime. People do not invest in companies like Walmart, Bank of America and Coca Cola for exponential growth, they do it for a stable and secure passive income in form of divides.
This type of company is considered less risky.
Growth.
Facebook, Google, and Tesla are examples of growth companies. They grow their revenues way faster than value companies because they have a lot of tailwinds as more and more people on Earth get access to the Internet - they are all potential new customers for companies like Google and Facebook (now Meta). More and more people see value in electric cars and buy them than ever before and this number will continue to grow for many years ahead.
These companies don't pay dividends to their shareholders because they reinvest their profits back into their business, which includes research and development, creating new products and services, expanding into new countries, buying other companies, and so on.
Shareholders of these companies get rewarded with capital appreciation or in other words, the stock price of these companies grow at a quicker pace than traditional value stocks and investors can sell the stock for a higher price in the future. Some more established growth companies like Google, Facebook, and Adobe also do share buybacks, which is also a reward for the shareholder because when a company buys back its shares that means there will be fewer shares available to buy in the stock market and the shareholder's stake in the company increases. Growth companies are considered more volatile and risky than established value companies that have been around for many dozens of years.
What's better?
There is no perfect strategy, both have its advantages and disadvantages.
The younger you are, the more risk you can take because you simply have more time. If you are closer to retirement it is recommended to stick mostly to great dividend paying companies. This way you will be able to retire with a stable and regular passive income in form of dividends.
It doesn't mean that you can't diversify and do both types of investing at the same time. You can keep half of your portfolio in growth stocks and the other half in dividend paying stocks. It all depends on your risk tolerance and you should always be responsible and consider the risks.
"Rule number one: never lose money. Rule number two: never forget rule number one"
Warren Buffet, CEO of Berkshire Hathaway