Investing for Income or Growth

In my 20+ years experience in the financial services industry, it’s not uncommon to come across people who’ve not considered all aspects of investing apart from the primary goal of making money. Until recently, you could have almost invested in any area and made money.  Even a drover’s dog did well.  However, since the global financial crisis in 2008 the tide has turned and capital growth is much more difficult to achieve.  I believe that going forward there will be a dramatic change in the attitude towards investing with far less emphasis on growth and more focus on the level of income that the investment produces.

When you think about it, income really is the most important principle of investing and yet it is rarely spoken about or understood by investors and the investment industry.  For example, would you make the decision to purchase a rental property or farm land principally because of the capital growth potential?  Remember, only the income that can pay the loan and costs.  Growth is something that can be taken away whereas income, once it is paid, is yours to keep.

I recently read an article about stock-market returns over the last 100 years and surprisingly, 70% of the total return was derived from the dividend income. I’d suggest that most investors who buy assets like shares and rental properties do so mainly for capital growth. When you think about it, you can eat the income but can’t eat growth (unless you sell).

Bob Budreika
Planning for Prosperity

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