Chingo De Dinero

First, let me give the definition of both:

Value Investing: involves purchasing stocks that have a market price below an assessed priced, usually found through fundamental analysis. This typically involves low price-to-book or price-to-earnings ratios, or high dividend yield.

Growth Investing: involves purchasing stocks that will have high future growth.

Now that you have definitions, you will know a little more when you are given the fund options for your 401k.

What are the benefits and drawbacks of both?

Well, if you only focus on value, you can get hit by companies that are on the decline. For example, if the company is selling for less than their book, maybe their book value is inflated (e.g. price of assets has decreased). The company may not lose money, but may fail to grow, resulting in below market returns.

If you look just at growth, you could pay way to much for a company. So, even if it does grow, the stock can still be overvalued (e.g. if you purchases a stock with a 100 p/e, it could grow at 15% year-over-year and you still could lose money, or would make very little).

My advise is to factor in both…if you use the present value of all future cash flows, while factoring the current asset position, you have done this. You factor in the current value, while at the same time factor in the growth. Be greedy, don’t settle for just one, require it all.