Since writing about FIRE in 2009, I’ve favored investing in growth stocks over value stocks. As someone who wanted to retire early from finance, my goal was to build as large a capital base as quickly as possible. Once I retired, I could convert these gains into dividend-paying stocks or other income-generating assets to cover my living expenses if so desired.
Although more volatile, you’ll likely generate more wealth faster by investing in growth stocks. By definition, growth stocks are expanding at a rate above average, which means shareholder equity also tends to compound faster. As equity investors, that’s exactly what we want. Instead of receiving a small dividend, I’d rather have the company reinvest capital into high-return opportunities.
Once a company starts paying a dividend or hikes its payout ratio, it’s signaling it can’t find better uses for its capital. If it could generate a higher return internally—say, improving operating profits by 50% annually—it would choose that instead. Think like a CEO: if you can reinvest for outsized returns, you do it. You don’t hand out cash unless you’ve run out of high-ROI projects.
The whole purpose of FIRE is to achieve financial independence sooner so you can do what you want. Growth stocks align with this goal; value stocks generally don’t.
My Growth Stock Bias
I’m sure some of you, especially “dividend growth investors,” which I consider a total misnomer, will disagree with my view. But after 29 years of investing in public equities, working in the equities divisions at Goldman Sachs and Credit Suisse, retiring from finance in 2012 at age 34, and relying on my investments to fund our FIRE lifestyle, I’m speaking from firsthand experience.
Without a steady paycheck, I can’t afford to be too wrong. I’ve only got one shot at getting this right. Same with you.
Given my preference, my 401(k), rollover IRA, and taxable accounts have been heavily weighted toward tech stocks since I started Financial Samurai. My holdings—Meta, Tesla, Google, Netflix, and Apple—have certainly taken hits in 2018, briefly in 2020, and again in 2022. But overall, they’ve performed well. Technology was clearly the future, and I wanted to own as much of it as I could comfortably afford.
I no longer consider Apple a growth stock given its innovation slowdown and entrenched market position. But it was once a core compounder in my portfolio.
My Occasional Value Stock Detours (and Regrets)
Despite my beliefs, I sometimes can’t resist the lure of value stocks. In the past, I bought AT&T for its then-8% yield—only to watch the stock sink. I bought Nike when it looked “cheap” relative to its historical P/E after the Olympics, but it didn’t outperform the index.
My latest blunder: UnitedHealthcare (UNH).
After UnitedHealthCare (UNH) plummeted from $599.47 to $312, I started buying the stock. I was amazed that a company this large, with such pricing power, could lose half its value in just a month. Surely, I thought, the market was overreacting to the latest earnings report and would soon realize the operational picture didn’t justify a 50% drop.
But the stock kept sliding, hitting $274. I bought more. For several weeks, UNH clawed back above $300, and I felt vindicated. Then it tanked again—this time to $240—after another disappointing earnings report. I added some shares, but by then, I had already reached my comfortable position limit of about $46,000.
To be thorough, value stocks are shares of companies that investors believe are trading below their intrinsic or fair value, usually based on fundamentals like earnings, cash flow, or book value. The idea is that the stock is “cheap” relative to its fundamentals, and the market will eventually recognize this, leading to price appreciation.
I Really Don't Like UnitedHealthCare
I have a hate, hate, acceptance relationship with UnitedHealthcare. Ever since I had to buy my own health insurance in 2015, my view of the company soured. Back then, our monthly UNH premium was $1,680 for two healthy thirtysomethings who rarely used the medical system. Outrageous.
But what were we supposed to do, manipulate our income down to qualify for subsidies? I know many multi-millionaire FIRE folks who do, but it feels wrong so we haven't. Medical costs in America are so high that going without insurance is financial Russian roulette. We had no choice but to pay.
Since 2012, we’ve paid over $260,000 in health insurance premiums. Then we finally had a legitimate emergency—our daughter had a severe allergic reaction to scrambled eggs. We called 911, took an ambulance to the ER, and got her stabilized. We were grateful for the care, but not for the bill: over $1,000 for the ER visit and $3,500 for a 15-minute ambulance ride.
And what did UnitedHealthcare do? Denied coverage. My wife spent a year fighting the usurious ambulance charge before we finally got partial relief. We were furious.
Today, we begrudgingly pay $2,600 a month for a silver plan for our family of four and still have little confidence UNH will do the right thing when the next big medical bill arrives.
So when the stock collapsed by 50%, I figured: if the company is going to keep ripping us off, I might as well try to profit from it. Big mistake so far.
Why Chasing Value Stocks Slows Your FIRE Journey
Now, let me explain three reasons why buying value stocks over growth stocks is usually a suboptimal move for FIRE seekers.
1) Impossible to bottom tick a value stock
Whenever a stock collapses, it can appear deceptively attractive. The instinct is to see tremendous value, but if the stock falls 50% and earnings per share (EPS) also drop 50%, the valuation hasn’t actually improved—it’s just as expensive as before.
The trap many value investors fall into is buying too much too soon. This is how you end up “catching a falling knife”—and getting bloodied. I was down about $10,000 at one point, or 17% from my initial purchase.
After investing since 1996, I know better than to go all-in early. Yet I still bought my largest tranche—about $24,000 worth—when UNH was around $310–$312 a share. As it continued to slide, I added in smaller amounts. By the time the stock fell to $240, I was mentally waving the red flag once I’m down about 20% on a new position. So I only nibbled instead of gorged, much like buying the dip in the S&P 500 overall.
The point: You have a far better chance of making money buying a growth stock with positive momentum than a value stock with negative momentum. Don’t kid yourself into thinking a turnaround will magically begin the moment you hit “buy.” It's the same way with buying real estate or any other risk asset. Do not buy too much of the initial dip too soon.
2) Tremendous Opportunity Cost While You Wait for a Turnaround
Stocks collapse for a reason: competitive pressures, disappointing earnings and revenue forecasts, corporate malfeasance, or unfavorable macroeconomic and political headwinds.
For UNH, the drop was a perfect storm: bad publicity, rising medical costs, disappointing earnings, and a Department of Justice investigation into Medicare fraud. After the tragic shooting of a UNH executive by Luigi Mangione, thousands of stories surfaced about denied coverage and reimbursements. Suddenly, the hate spotlight was firmly on UNH.
During the two months I was buying the stock, the S&P 500 kept grinding higher. Not only was I losing money on my value stock position, I was missing out on gains I could’ve had simply by buying the index. Opportunity cost! Another great reason to be an index fund fanatic. If I had allocated the $46,000 I spent on UNH to Meta—one of the growth stocks I was buying at the same time—I would have made far more.
Turnarounds take time. Senior management often needs to be replaced, which can take months. If macroeconomic headwinds, such as surging input costs, are the issue, improvement can take 12 months or longer. If cost-cutting is required via mass layoffs, the company will take a large one-time charge and suffer from lost productivity for several quarters.
By the time your value stock recovers—if it recovers—the S&P 500 and many growth stocks may have already climbed by double-digit percentages. Unless you have tremendous patience or are already a multi-millionaire, waiting for a turnaround can feel like watching paint dry while everyone else is sprinting ahead.
3) Emotional Drain, Frustration, and Behavioral Risk
Value traps often force you to watch your capital stagnate for months or even years. For FIRE seekers, that is not just a financial hit, it is a psychological one.
Watching dead money sit in a losing position can push you into making emotional, suboptimal decisions, such as swearing off investing altogether. Growth stocks can be volatile, but at least you are riding a wave of forward momentum instead of waiting for a turnaround that may never come.
It is like buying a house in a declining neighborhood. You keep telling yourself things will improve. The new park will attract families. The school district will turn around. The city government will clean up its act. But year after year, nothing changes.
Meanwhile, a neighborhood across town is booming, home values are doubling, and you are stuck wishing you had bought there instead. That opportunity cost is not just financial. It is mental wear and tear that can drain your energy and cloud your decision making.
Not only do you risk growing regret over tying up hard earned capital in a value stock that never recovers, but you also face the sting of rising investment FOMO. That is a toxic combination for anyone trying to stay disciplined on the path to FIRE.
You might end up doing something extremely reckless to catch up, like go all in on margin at the top of the market.
FIRE Seekers Don’t Have Time to Invest in Value Stocks
If you’re pursuing FIRE, you don’t have time for “deep value” stories to play out. Every year you spend waiting for a turnaround is a year you’re not compounding at a faster rate elsewhere. Growth stocks, while more volatile, give you a far better chance of building your capital base quickly so you can reach financial independence sooner.
Just look at the private AI companies that are doubling every six months or even faster. I'm kicking myself for even bothering to invest in a turnaround story like UNH. Life-changing wealth is being created in only a few years. There has never been a period in history where so much money has been built this quickly.
Remember, the FIRE clock is always ticking. The goal isn’t just to make money, it’s to make it fast enough to buy back your time while you’re still young, healthy, and able to enjoy it.
Chasing value traps can lock up your capital in underperforming assets, drain your energy, and delay the day you get to walk away from mandatory work. In the race to FIRE, momentum and compounding are your greatest allies, and growth stocks tend to provide both.
Post Script: UnitedHealthcare May Finally Rebound
There’s another explanation for my stance on being negative toward value stocks. I may simply be a bad value stock investor who lacks the ability to pick the winners and the patience to hold these turnaround stories for long enough to reap the rewards.
With UnitedHealthcare, though, it seems like the cavalry might be riding in to rescue my poor investment decision. After I wrote this post, it appears Warren Buffett, several large hedge funds like Appaloosa and Renaissance, and Saudi Arabia’s Public Investment Fund are all buying billions of dollars worth of UNH alongside me.
Will this renewed interest from some of the world’s most powerful investors be enough to get Wall Street and the public excited again? We’ll just have to wait and see.
Questions for Readers:
Would you rather own a struggling industry leader with a chance of recovery, or a high-growth disruptor with momentum?
Have you ever owned a value stock that turned around in a big way? How long did you have to wait?
Subscribe To Financial Samurai
Pick up a copy of my USA TODAY national bestseller, Millionaire Milestones: Simple Steps to Seven Figures. I’ve distilled over 30 years of financial experience to help you build more wealth than 94% of the population and break free sooner.
Listen and subscribe to The Financial Samurai podcast on Apple or Spotify. I interview experts in their respective fields and discuss some of the most interesting topics on this site. Your shares, ratings, and reviews are appreciated.
To expedite your journey to financial freedom, join over 60,000 others and subscribe to the free Financial Samurai newsletter. Financial Samurai is among the largest independently-owned personal finance websites, established in 2009. Everything is written based on firsthand experience and expertise. I do what I say.
