How to Choose Between Growth and Value ETFs
Last updated: March 2026
Understand the difference between growth and value investing styles, how each performs in different market environments, and how to decide which belongs in your portfolio.
Step 1: Define Growth and Value Investing
Growth investing focuses on companies expected to grow their revenue and earnings faster than the overall market. These companies often reinvest profits rather than paying dividends, and their stock prices tend to be high relative to current earnings because investors are paying for future growth potential. Think of technology and innovative companies. Value investing focuses on companies that appear undervalued by the market, trading at low prices relative to their earnings, book value, or dividends. These tend to be mature, established companies in sectors like financials, energy, and industrials. Growth stocks offer higher potential returns with more volatility, while value stocks offer more stability with potentially lower but steadier returns.
Step 2: Learn How Each Style Performs Over Time
Historically, value stocks have slightly outperformed growth stocks over very long periods of multiple decades, a phenomenon known as the value premium. However, growth stocks dramatically outperformed value from roughly 2010 to 2021, leading some to question whether the value premium still exists. Value stocks then outperformed in 2022. The key insight is that growth and value take turns leading. Neither style permanently dominates. This rotation is unpredictable and can last for years or even decades. Rather than trying to predict which style will lead next, many investors hold both or simply hold a total market fund that blends growth and value naturally.
Step 3: Explore Popular Growth and Value ETFs
For growth exposure, VUG from Vanguard tracks large-cap US growth stocks at an expense ratio of 0.04 percent. IWF from iShares is a comparable option tracking the Russell 1000 Growth Index. SCHG from Schwab offers similar exposure at 0.04 percent. For value exposure, VTV from Vanguard tracks large-cap US value stocks at 0.04 percent. IWD from iShares tracks the Russell 1000 Value Index. SCHV from Schwab is another option at 0.04 percent. All of these are low-cost, well-established funds with billions in assets. The differences between competing funds in the same category are minimal, so focus on expense ratio when choosing.
Step 4: Decide Whether to Tilt or Stay Neutral
A total market ETF like VTI holds both growth and value stocks in market-weight proportions. This is the neutral approach and is perfectly appropriate for most investors. If you have a reason to tilt, you might add a growth or value ETF as a small supplement to your core total market holding. A growth tilt makes sense if you have a very long time horizon and can tolerate higher volatility for potentially higher returns. A value tilt makes sense if you want slightly more stability, higher dividends, and exposure to the historical value premium. Any tilt should be modest, perhaps ten to twenty percent of your stock allocation, with the remainder in a total market fund.
Step 5: Understand the Risks of Each Style
Growth stocks are vulnerable to rising interest rates, which make their future earnings less valuable in present terms. They also tend to fall harder during bear markets because their high valuations leave more room to compress. Growth stocks can decline fifty percent or more in severe downturns. Value stocks carry the risk of being value traps, companies that are cheap for a reason such as declining businesses or industries. They tend to fall less in bear markets but may also recover more slowly. Understanding these risks helps you choose the exposure that matches your psychological tolerance and prevents you from panic selling during the inevitable periods when your chosen style underperforms.
Step 6: Implement Your Decision Simply
If you decide to stay neutral, hold VTI or a similar total market ETF and you are done. If you want a growth tilt, hold eighty percent VTI and twenty percent VUG. If you want a value tilt, hold eighty percent VTI and twenty percent VTV. Do not over-complicate this by adding both growth and value tilts simultaneously, which roughly cancels out and leaves you back at the total market. Whichever approach you choose, commit to it for at least five years before evaluating whether to change. Style rotations can take years to play out. Switching back and forth based on recent performance is the most reliable way to underperform both styles over time.
Pro Tips
- ✓A total market ETF like VTI already contains both growth and value stocks, so you do not need separate growth and value funds unless you want an intentional tilt.
- ✓If you add a growth or value tilt, limit it to ten to twenty percent of your stock allocation and keep the rest in a total market fund.
- ✓Do not chase whichever style performed best recently because growth and value leadership rotates unpredictably over years and decades.
- ✓Growth ETFs work well in Roth IRAs where their potentially higher long-term gains grow completely tax-free.
Common Mistakes to Avoid
- ✗Switching from growth to value or vice versa based on recent performance, which typically means buying high and selling low as styles rotate.
- ✗Holding both a growth ETF and a value ETF in equal weights alongside a total market ETF, which adds complexity without changing your effective allocation.
- ✗Assuming growth stocks will always outperform because of the 2010 to 2021 period, ignoring that value has outperformed over longer historical periods.
- ✗Over-concentrating in growth stocks without understanding that they can lose fifty percent or more in a severe downturn.
Recommended: This beginner-friendly ETF course on Udemy covers everything from ETF fundamentals to building a recession-proof portfolio in 7 days.
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