Must read! 1 huge $50bn reason I pick dividend shares over growth stocks

Dividend stocks are always better represented in my portfolio than growth stocks. For every four or five dividend stocks, I have a growth stock.

There are several reasons for this. I’m not a day trader and I’m quite risk-averse and have built a portfolio that I don’t want to lose.

Also, by investing in dividend stocks, I can use a compound return strategy. This is the process of reinvesting the dividends every year, earning interest for my interest.

But risk is the main reason why growth is not my focus.

Growth vs value

Growth stocks refer to companies that are expected to increase revenue or profits faster than the average business in the industry or market broadly. In recent years, there have been many prominent growth stocks in the technology and biotechnology sectors.

Value stocks refer to companies that are more established and that tend to trade at a lower price than their financial and fundamental performance suggests should be expensive.

Meanwhile, value stocks often pay dividends, while growth stocks reinvest profits into growth.

However, it is important to note that many growth stocks fail and do not deliver the growth they promise. This is where the risk comes in.

50 billion dollar warning

Cathie Wood is the CEO of ARK Invest, an asset manager named after the Ark of the Covenant that invests in disruptive innovation – that is, all growth stocks. And in 2020, the LA-born investor was named the best of the year Bloomberg news editor-in-chief emeritus Matthew A Winkler.

But as of 2021, Wood’s growth-focused portfolio has stalled. Data published online showed that total assets across the Ark’s nine ETFs had fallen to $11.4bn from a peak of $60.3bn in February 2021.

This represents a loss of almost $50bn.

As one of the world’s most famous investors, the collapse of his portfolio shows the volatility of investing in growth stocks.

Wood’s ETFs seek to identify a number of companies that can generate exponential returns by shaping the future. The portfolio covers areas ranging from space exploration and fintech, to robotics and the genomic revolution.

However, the entire ARK Wood portfolio fell sharply.

Shares of his flagship ARKK have fallen 68% in 12 months, and are now trading at their lowest point in five years. The portfolio has even underperformed technology-heavy Nasdaq index, which dropped 33% over the year.

Even wise choices can go wrong

To me, what Wood’s story tells us is that wise choices in growth can go wrong. The 67-year-old has decades of experience in the industry and is considered the best investor of 2020.

I have exposure to growth stocks. I have stock from NIO, Scottish mortgage, Hargreaves Lansdowne and Chemical and Mining Society of Chile.

But Wood’s challenge over the past year has highlighted the importance, for me, of keeping a value-focused portfolio and reinvesting dividends every year.