Growth investing and income investing are two techniques that you can use to try to achieve your money goal. Each has its own advantages, characteristics, and considerations, and is suitable for a certain type of result.
How would you know which of these two might be right for you? Can you choose to do both at the same time? Read on to find out the answers.
What is growth investing?
This is a strategy in which you directly or indirectly put money in assets which you believe have the potential to grow in value over time.
You’ll sell these assets by the time you need the cash or if they reach the value you were trying to make. It all depends on your plan and what you’ll be doing with the money you’re getting.
Growth investing is usually done by putting money, usually through stocks, in industries or markets that are experiencing or are about to undergo rapid expansion. This adds a certain amount of risk, because this often means putting your faith in new companies whose potential hasn’t yet been proven.
You can also do growth investing through pooled funds (like a Unit Investment Trust Fund or UITF) that aims to achieve that goal for its investors. Such funds are run by professionals who take care of all the research and decisions for you.
What is income investing?
With income investing, you’ll be putting your money in assets which have the potential to give you income over time. This income can come in many forms, including dividends from stocks, ETFs or REITs and coupon payments from bonds.
You won’t be very concerned with if these assets grow in value or stay at the same price as when you bought them. Instead, your focus will be on the regularity and amount of income that they give you.
While income investing is a good way to supplement the money that you get from other sources (like your salary), it’s also great for when you retire because it gives you a chance to still receive income regularly.
Stocks that have a good history of paying dividends (Real Estate Investment Trusts or REITs in particular) will be your usual options if you want to do income investing. You may also choose a pooled fund that focuses on income, if you’d prefer to have professionals handle your investment.
Which one is for you?
Choosing between growth and income is a matter of determining which of them might fulfill your objective.
If you’ll be making a big purchase, like a car or even a house, growth investing might be better for you. On the other hand, if you’re planning to add to the income you’re receiving now or even thinking of the years when you won’t be working anymore, income investing could be the right choice.
Can you do both at the same time? Yes, although you should keep in mind that splitting your principal (the money used for investing) between two goals means that you’ll probably have to compromise on the amount you want to earn, the time you’ll stay invested, or both.
If you choose to do both growth and income investing, you may want to create separate portfolios for each technique. This will make it easier for you to choose the right assets for each goal while also maintaining proper diversification to better manage risk.
