Investing for Growth or Income

Investing for the lifestyle you want

Investing for Growth or Income

Depending on what your aims and goals are, will decide whether you should be investing for income or growth.

Is an income stream of importance now, or are you able to wait over the long term to allow for growth?

John Mount

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Investing for income

When investing for income, any interest or dividends can be shared to you. The aim is for you to receive a regular income from your investment. With the recent lengthy period of low-interest rates, investors are looking beyond savings accounts and accepting more risk in order to achieve a higher income from their investment. The higher the risks, the higher the potential gains, but equally the potential for losses rise with an increased appetite for risk.

If you are unable to accept any levels of risk, a regular savings account may still be your best option. Your time frame for investment is also important and if you are considering a long term investment you should consult a financial adviser. They will discuss risk, inflation, returns and capacity for loss. They all have an important bearing on any financial decision that you make and is very personal to your own circumstances.

Investing for income
Investing for growth

Investing for growth

When investing for growth, rather than receiving a regular income the aim is for a long-term gain. The aim is to increase the value of the investment over the duration of the term and protect it from the erosive impacts of inflation. This is achieved by reinvesting any income that is generated by the initial investment.

Most growth investments use a mix of asset classes. These typically include cash, equities, corporate bonds, Gilts and property. The diversification and concentration of these asset classes within your investment portfolio will depend on your attitude to risk and investment horizon. This blend of assets are pooled within a “fund”. There are two main types of management of these funds, they are passive and active management. Passive funds generally try to duplicate the performance of an index they are tracking, contrary to an active approach when a fund manager will intently aim to surpass it. Passive investments usually have much smaller fees than active investments. There is no guarantee that one type of management is more successful than another.

Asset classes
(Investment classes)

An asset class is a wider group of investments or securities that consist of similar financial attributes.

There are four main types of asset classes:

  • Cash
  • Shares
  • Property
  • Bonds (Fixed-interest securities)

When we combine different asset classes in this way, it is often called ‘diversification’.

An example of a diverse portfolio

This method helps to balance the measure of risk within your portfolio, to a level that you are comfortable with and feel is sustainable.

Asset allocation is the proportion of your portfolio that you put into each asset class. At its simplest, an asset class can be defined as a broad type of investment.

UK Asset Returns Table

An example of a diverse portfolio over 15 years

Investing for Growth or Income

Regardless of whether you’re investing for growth or income, you should aim to hold your investment for a minimum of five years. This allows enough time for any investment to recover should there be any drop in value. As with all investments, there are no guarantees. Investments can fall and rise, and you may end up receiving less than you paid in.

The most suitable investment for you will depend on your willingness to accept risk, your goals, investment horizon and your capacity for loss. To discuss risk in detail and decide if investing for growth or income is right for you, it is advised to seek professional financial advice.

Plan today for a brighter tomorrow