A Beginner’s Guide to Value Funds: Investing for Long-Term Success

Mar 21

Investing can feel overwhelming, especially if you're new to the world of stocks and funds. With so many investment strategies to choose from, it’s important to find an approach that suits your financial goals and risk tolerance. One of the most reliable and time-tested strategies is value investing, and an excellent way for beginners to participate in this approach is through value funds.

This blog post may contain affiliate links, meaning I may earn a small commission at no extra cost to you if you make a purchase through one of these links. Please note that I only recommend products or services that I genuinely believe will add value to my readers. All opinions expressed are my own, and any affiliate income helps support the maintenance and growth of this blog. Please see my page of policies & disclaimers for further information. The information provided in this blog is for informational purposes only and should not be considered financial, legal, or investment advice. Always consult a qualified financial professional or advisor to address your specific circumstances before making any financial decisions.

Value funds allow investors to buy into a diversified portfolio of undervalued stocks, providing potential for long-term growth with less risk than individual stock picking. In this beginner-friendly guide, we’ll cover everything you need to know about value funds, including what they are, why they’re a smart investment, and how to get started.

What Are Value Funds?

A value fund is a type of mutual fund or exchange-traded fund (ETF) that invests in undervalued stocks—companies that are trading at prices lower than their intrinsic worth. These stocks may be temporarily out of favor with the market but have strong fundamentals such as solid earnings, healthy balance sheets, and a history of stability.

Key Characteristics of Value Funds

Invest in Undervalued Companies – Value funds seek stocks that are underpriced compared to their true worth.
Focus on Long-Term Growth – Instead of chasing quick gains, value funds aim for steady appreciation over time.
Less Volatile Than Growth Stocks – Because they invest in stable, well-established companies, value funds are typically less risky than growth stocks.
Often Pay Dividends – Many value stocks belong to established companies that pay regular dividends, providing an additional source of income for investors.

Why Invest in Value Funds?

Value funds offer a great balance of growth potential and stability, making them an excellent option for beginners. Here’s why:

1. Lower Risk Than Individual Stocks

Picking individual stocks can be risky, especially for new investors. A value fund spreads your risk across many stocks, reducing the impact of any one company’s poor performance.

2. Historically Strong Performance

Value investing has been a proven strategy for decades, used by legendary investors like Warren Buffett. Studies show that value stocks have outperformed growth stocks over the long term, especially during market downturns.

3. Ideal for Market Downturns

Value funds often hold stocks in stable industries like consumer goods, healthcare, and finance—sectors that tend to hold up well during economic downturns. This makes them a safer option when the stock market is volatile.

4. Many Pay Dividends

Since value funds invest in mature, profitable companies, they often include dividend-paying stocks. This provides passive income in addition to capital appreciation.

5. Great for Long-Term Investors

Value funds require patience, but they reward investors who stick with them over time. If you’re looking for an investment that can grow your wealth steadily over years or even decades, value funds are a solid choice.

How Value Funds Differ from Growth Funds

To fully understand value funds, it’s helpful to compare them to growth funds, their opposite counterpart.

FeatureValue FundsGrowth FundsInvestment FocusUndervalued, established companiesHigh-growth, fast-expanding companiesRisk LevelLower risk, more stableHigher risk, more volatileDividend PotentialOften pay dividendsRarely pay dividendsMarket CyclesPerform well during downturnsPerform best in bull marketsExample StocksJohnson & Johnson, Coca-ColaTesla, Amazon, Nvidia

Value funds focus on steady, reliable growth, while growth funds prioritize rapid capital appreciation. Both can be great investments, but value funds are often preferred by conservative investors and those looking for stability.

How to Choose the Best Value Funds

Not all value funds are created equal. Here’s what to look for when selecting a value fund:

1. Expense Ratio

This is the annual fee you pay to invest in a fund.
Look for funds with low expense ratios (under 0.50%) to maximize your returns.

2. Historical Performance

Check how the fund has performed over the last 5–10 years.
A strong long-term record is a good indicator of reliability.

3. Diversification

A good value fund should invest in multiple industries (e.g., healthcare, finance, energy) to spread risk.

4. Fund Manager Experience

Experienced fund managers can help navigate market fluctuations and find solid investment opportunities.

5. Dividend Yield

Many value funds include dividend-paying stocks, which can be an added bonus.

Best Value Funds for Beginners

If you’re ready to invest in value funds, here are some of the top options for beginners:

1. Vanguard Value Index Fund (VVIAX/VTV – ETF version)

Expense Ratio: 0.05%
Why Invest? Low-cost option with exposure to large-cap value stocks like Berkshire Hathaway and Johnson & Johnson.

2. Schwab U.S. Large-Cap Value ETF (SCHV)

Expense Ratio: 0.04%
Why Invest? Offers a well-diversified portfolio of undervalued U.S. companies with minimal fees.

3. Fidelity Value Fund (FDVLX)

Expense Ratio: 0.78%
Why Invest? Actively managed fund that seeks high-quality value stocks with strong growth potential.

4. iShares Russell 1000 Value ETF (IWD)

Expense Ratio: 0.19%
Why Invest? Tracks a broad index of value stocks across various industries.

5. T. Rowe Price Equity Income Fund (PRFDX)

Expense Ratio: 0.64%
Why Invest? Focuses on value stocks that also provide dividends, offering both income and growth potential.

These funds provide diversified exposure to undervalued companies, making them great choices for new investors.

How to Start Investing in Value Funds

Step 1: Open a Brokerage Account

You’ll need a brokerage account to buy mutual funds or ETFs. Some popular options include:

Vanguard – Great for low-cost index funds
Fidelity – Offers both mutual funds and ETFs
Schwab – Low fees and beginner-friendly platform
Robinhood – Ideal for those who prefer commission-free trading

Step 2: Research and Select a Value Fund

Use resources like Morningstar, Yahoo Finance, and Investopedia to compare value funds and choose one that fits your needs.

Step 3: Decide How Much to Invest

Start with what you can afford. Many mutual funds require a minimum investment (e.g., $1,000), while ETFs can be purchased for the price of one share.

Step 4: Set Up Automatic Investments

Consider setting up automatic contributions to dollar-cost average into your fund over time. This helps smooth out market fluctuations and reduces risk.

Step 5: Stay Patient and Invest for the Long-Term

Value funds are long-term investments, so avoid checking your portfolio daily. Stick with your plan and let compounding work its magic.

Final Thoughts

Value funds are one of the best investment options for beginners looking for stable, long-term growth. By focusing on undervalued stocks with strong fundamentals, they provide less risk than growth stocks while still offering steady appreciation and dividend income.

If you’re new to investing, starting with a low-cost, diversified value fund can be a great way to build wealth over time. Remember to stay patient, reinvest your dividends, and stick with your strategy—your future self will thank you!

Are you considering investing in value funds? Let us know in the comments below! 🚀💰

Danielle