Young investors are growth investors, and older investors are income investors.
Or, is it that aggressive investors go for growth and conservative types seek income.
I can never remember how it works because the investment industry itself has no set definition for growth and income. And yet, they’re key terms to know because they will help you ensure you get the results you’re looking for from your investments.
Growth means investments rising in value over the purchase price to produce capital gains. Income refers to investments with a primary goal of paying out cash. Typically, income means either bond interest or dividends paid by stocks.
Based on those definitions, you might think that growth investing is a young person’s game and income investing is for seniors who want to supplement their pensions and registered savings with additional funds. That’s true to some extent.
In your younger investing years, you should take advantage of the decades of compound available and use growth-oriented investments, like mutual funds or exchange-traded funds, which hold stocks.
Likewise, income investments are important for retirees. Bonds and guaranteed investment certificates should be part of the mix, but don’t stop there. Heard of widow and orphan stocks? They’re a classic income investment because they pay a rich, reliable dividend that can be a key source of cash for an investor who’s living off his/her savings. Actually, blue-chip dividend stocks are great to own even if you’re not an income investor.
As for the young growth investor, don’t overlook income. The highest-quality blue-chip dividend stocks increase their dividends every year or so, which helps drive the share price higher. That’s both growth and income in the same package.
While growth investing sounds a lot more glamorous than income investing, my sense from years of talking to investors is that most people are happiest with an emphasis on income. When you receive a dividend from a stock or a bond interest payment, it’s cash in your account. Whether the stock market goes up or down, the money stays around.
Growth investing is all about the stock market’s golden promise that if you buy stocks and hold onto them, they can increase a lot in value. In recent years, though, we’ve all seen stocks and funds we own give up gains that took years to build. Nothing takes the edge off these sad declines like some dividends or bond interest flowing into your account. Go income!
Next: Guaranteed investment certificates (GICs): the income investment for the young and old.