There are many ways to configure the types of investments in your portfolio.  On the principle of keep it simple I classify my investments into one of the following 4 categories:

• Growth
• Dividend
• Value
• Index

My portfolio has all categories but by classifying I can weight to my point in time needs ( more on this later)

In Sept 2012, the Globe and Mail hired four investors and charged each with managing a hypothetical portfolio focused on buying and selling stocks according to type.

The overall returns for the first 3.5 years (so as at March 2016) were: growth – 206.69%, value – 67.77 %, dividend – 45.10 % and Index – 30.89%.

Even the lowest return averages just under 10 % a year.  Way better than a low risk fixed income product like a GIC or Govt bond.

Approach aside, how do you select?

Awareness of these four basic approaches to categorizing a stock can help with the selection process but regardless of the type still the most important step is the actual vetting of the individual equity.

Each approach has a different risk profile and associated potential return (risk/reward).  Generally regardless of the characterization of your purpose (i.e.,growth, income,low risk, good value) the most important factor is that the equity you select performs as expected.

You can use performance measures and various screening techniques to help with this process .  This can be used to identify historic behavior of the stock (although not always a predictor of future behaviour.)

The type of stock in your portfolio can be classified and balanced based on the metrics and future performance predicted.  However, my own selection style always includes these commom sense analysis steps:

• do I understand the business model (and does it make sense)
• does the stock match my point in time needs relative to growth, risk and income (these change over time)
• do the companies leadership behaviors conform to my personal value system (e.g., Volkswagen – NOT)

In short, I would classify my own investment style’s most prominent feature as common sense.