It can be hard to know whether or not ASX growth or dividend shares are better to buy in a low interest rate environment.
On the one hand, it can feel like it's safe to invest for the future and buy up on big growth shares like Afterpay Ltd (ASX: APT). On the other, it could be a time to take more cash in the hand and put your money into ASX dividend shares like Telstra Corporation Ltd (ASX: TLS).
So, if you're looking to buy into the market, where should you invest your money right now?
Why ASX growth shares can be a good option
ASX growth shares are often seen as riskier compared to ASX dividend shares. This largely comes down to the way that growth is valued in the markets. One of the most common metrics is the price-to-earnings (P/E) ratio, which measures how much money an investor receives for what they pay.
For ASX growth shares like Afterpay, this number can be very high and/or uninformative. This is particularly the case if earnings are negative like they are for the buy now, pay later group. However, investors aren't stupid and they don't just spend their money on S&P/ASX 200 (INDEXASX: XJO) shares without expecting a good return.
A company can start as a growth share but transition towards a dividend-paying stock over its life cycle. Companies generally make money, reinvest it into the business to grow further and then eventually start paying back their profits to shareholders. I'd say that if you're buying ASX growth shares right now, you want to be buying for the long-term.
However, growth shares are usually hit the hardest in a downturn and that's why I'd prefer to look at ASX dividend shares right now.
ASX dividend shares are still king right now
ASX dividend shares tend to have lower volatility given they pay out money to their investors. Whilst the Afterpay valuation relies on future growth assumptions, something like Telstra is valued largely on its future dividends.
Telstra shares are yielding around 2.86% at the time of writing and trading at a P/E ratio of 20.2 times. I think there's some expectation of Telstra growing earnings on the back of its 5G network plans in coming years.
It's not just Telstra that could be a good buy at the moment. Other ASX dividend shares in potentially defensive sectors include Newcrest Mining Limited (ASX: NCM) and AGL Energy Limited (ASX: AGL).
Foolish takeaway
Whichever way you decide to go, it's worth being wary of investing in either ASX growth or dividend shares.
