When we invest, we want to see those initial funds transform into something bigger or something that provides us with additional income. We want to know that our money is being placed into funds that are not only secure but where the opportunity to make gains is evident.
For some people, aiming for an income stream via investments is one way to do this. For others, it’s about seeing an investment grow over time so that when retirement looms, it may be made a little easier.
Why not benefit from both though? Many funds exist where the objective is to deliver results investing for income and growth.
So, in this blog, we look at why investing for income and growth could be a strategy that pays off both now and in the future.
Let’s look at income first.
Income provides stability
When you invest for income, you invest in assets that deliver regular cash flow. This could be dividends from stocks, income from rental properties, or interest from bonds. When investing for income, you want to look for stability. Something that can almost guarantee there will always, or consistently be, an income stream from what you have invested in.
Consistent returns
Income investments are there to provide regular payouts, payouts that are not always affected by market fluctuations. For those looking to top up a paycheck, or make living through retirement a little easier, investing for income can often be a good option.
Inflation beating
In some (and certainly not all) cases, income investing can see payouts increase over time. Dividend-paying stocks can be a good example of this. This puts investors in a position where they can dodge the impact of inflation and retain the way they spend on consumables, living costs, and more without feeling the same impact as others. In a time of rising prices, this can be a great way to navigate a cost-of-living crisis for example.
Diversified
Diversification is often a good way to invest, regardless of whether it is for income or growth. It’s a way to spread your money and hopefully reap the rewards of multiple performing assets. With diversification, risk can be reduced and see enhanced portfolio resilience.
Wealth through growth
Now moving onto growth, which, if you are new to investing, you will soon learn is quite different to income.
Investing for growth involves investments in specific assets that have the potential to appreciate over time. Growth stocks or industries with high growth potential are often the choice for investors and they wait to see their returns generated through price appreciation rather than a regular income stream.
Appreciation
Investing for growth is best done with the future in mind. Growth investing has the potential to deliver significant returns over the long term as the value of the underlying assets continues to rise. If the right sectors are invested in, this can see a significant boost to the investors’ wealth. It just takes time and a little research to find the emerging markets that could deliver this long-term reward.
Earn through interest
It may sound like common sense to many but by reinvesting earnings back into the investment, the growth of your wealth can be accelerated. Compound interest is one of the most useful wealth-building assets you can rely on as your assets generate earnings on top of previous earnings. Leave this for the long term and your funds can be substantially improved with little to no additional effort required by you.
Adaptability
Adopting a strategy for growth allows an investor to capitalize on trends. Investing in innovative companies allows investors to benefit from those businesses that are helping to cause a reshaping of the economy. Think of those that may have invested in Google in its early days, or Chat GPT today. Through spotting opportunities that hadn’t yet fully matured, income growth was just around the corner for those savvy investors.
Combining income and growth for investing
Whilst separately, income and growth provide separate investment benefits, it is when they are combined, that further opportunities arise.
Balanced investing
By investing with both income and growth in mind, you can balance your portfolio. Should markets falter, regular income from dividends or interest can help absorb the losses market volatility could have caused in other investments. This cushion effect allows investors to ride out the storm and stick with their portfolio for the longer term.
Diversification (again!)
As we mentioned earlier, diversification can be applied when investing for either income or growth but when you choose to invest for both, diversifying that portfolio can be a useful way to spread the risk and manage the more troublesome waters that some parts of the market may find itself in at times.
Long-term wealth creation
With your income investments providing a regular flow of cash, you can turn income into growth by reinvesting it into growth opportunities. This not only accelerates your wealth generation but allows for both the funds you set aside for growth to be further helped along by those that generated your income.
Investing for both income and growth gives a balanced way to invest providing a wealth accumulation that stems from the benefits of diversifying, growth and stability.
Combining growth and income investing provides you with a durable portfolio that can weather the choppy seas you often encounter when investing and still benefit from long-term opportunities.
The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any finance decisions. Appropriate independent advice should be obtained before making any such decision. London Loves Business bears no responsibility for any gains or losses.
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