If you're unsure about the best way to balance risk and return
within your stock portfolio, you may want to consider the strategy of combining
growth and value funds. Because these funds often do not move in tandem in
response to market or economic conditions, you may minimize risk without
sacrificing return by owning some of each.

Growth and Value Defined

Growth stocks represent companies that have demonstrated
better-than-average gains in earnings and are expected to continue delivering
high levels of profitability. While earnings of some companies may be depressed
during an economic slowdown, growth companies generally continue to expand
their earnings. The primary risk associated with a growth stock is the
potential for its price to decline sharply if the company releases negative
news that disappoints investors.

Value stocks, in contrast, generally have fallen out of favor
in the marketplace and are priced much lower than stocks of similar companies.
The lower price may reflect investor reaction to recent company problems, such
as disappointing earnings or a lawsuit, which may raise doubts about a
company's long-term prospects. The value group may also include stocks of new
companies that have yet to achieve recognition. Value stocks also pose a
potential risk -- the stock price may not rebound, leaving an investor with
limited upside.

An All-Season Portfolio

Mixing growth and value funds within your portfolio allows you
to potentially gain as the market moves through different cycles. Although past
performance cannot guarantee future results, value stocks, often those of
cyclical industries, tend to do well early in an economic recovery; growth
stocks, on the other hand, tend to outperform during bull markets, which are
normally fueled by falling interest rates and rising company earnings. But the
good news is you don't have to choose -- combining growth and value funds may
present a prudent strategy for balancing risk and return over the long term.

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January 2012 — This column is provided through the Financial
Planning Association, the membership organization for the financial planning
community, and is brought to you by Ronald J VanSurksum, CFP®, a local member
of FPA.

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