Strategic investments make your money multiply. However, there are different approaches to investing. It isn’t one size fits all. Once you’ve decided to invest your money, you still need to decide what type of investment you want.
Some people focus on growing money they already have, while others want more money coming in passively, and still others desire a hybrid method. Once you’ve decided how you’re investing, you need to choose a strategy for picking specific investments.
Keep reading to learn the difference between growth investing, income investing, and value investing, as well as how to determine which is best for you.
What are Growth and Income Investing?
Investment funds typically fall under the category of either growth or income. Commonly, these two investment objectives act at odds with one another.
Growth investors want all earnings kept in the asset since this allows the investment to grow faster while income investors want profits returned as a form of income.
→ Growth Investors
Growth investing is focused on buying appreciating assets, meaning you obtain assets you expect to increase in value.
This is often a long-term strategy that occurs gradually, without much further action from the investor. It works best for investors that don’t need extra money immediately, but want substantial returns in the future.
Common examples of these types of assets include stocks, bonds or real estate. Typically, stocks come to people’s mind first when thinking of growth investing because of the famous idiom, “buy low, sell high”.
When looking to invest in growth stocks, choose a free stock trading app that doesn’t charge commissions or markups on trades, such as M1 Finance. These fees can make significant dents in your growth over time.
Growth funds are more likely to invest in companies that use money to reinvest in the business, instead of distributing dividends to shareholders. Technology stocks are often a favorite among growth investors.
→ Income Investors
The goal of income investing is to design a portfolio of income-generating assets that provides dependable cash payouts. These payouts can be reinvested or used for current living expenses.
This type of investment works well for people who don’t want to wait to start making their money back. Mutual funds, bonds, and stocks that pay dividends are all examples of income investments.
Real estate investing provides a steady income when tenants pay rent and is another popular income investment.
Alternatively, you can earn passive income by investing in real estate investment trusts (REITs). For example, investors can sign up for Streitwise, the highest-rated real estate investing platform in 2020, according to Millionacres by The Motley Fool.
Investors contribute money and then start to receive reliable dividend payments from real estate managed by experienced investors.
While these investment objectives may seem incompatible, growth and income investing aren’t mutually exclusive. Some of the best investments provide the opportunity to earn both types of returns, which will be discussed later.
Related: Best Dividend King Stocks for Royally Resilient Income
Can You Invest for Growth and Income?
You can diversify your portfolio with various stocks, bonds, and alternative investments to ensure you have a combination of growth investments and income investments.
Alternatively, you can invest in real estate, which provides both simultaneously. According to Gallup’s annual Economy and Personal Finance survey, real estate ranked as the favorite investment pick for Americans every year from 2013 to 2020.
Considering that real estate investing provides capital appreciation, income returns and numerous tax benefits, the survey data shouldn’t come as much of a surprise.
To illustrate why, let’s pretend you and your spouse decided to buy a second house in a city expected to grow and flourish within the next few years.
You choose to rent the home out to another couple. The monthly rent exceeds your mortgage payment on the building, so you’re making a profit every month.
Meanwhile, you’re taking advantage of tax deductions on the property every year, such as MACRS depreciation, mortgage interest, property tax, and operating expenses.
A few years later, the renters move out and you charge the next family more for renting from you because the city has grown and become a more desirable location.
Eventually, you decide it’s time to sell the house. Home values frequently outpace inflation, particularly in growing cities. You sell the house for significantly more than it cost you.
Remember that you aren’t limited to only investing in homes and properties you can fully afford on your own. If you’re interested in apartment buildings, commercial real estate, or another real estate investment, you can try crowdfunded real estate.
With crowdfunded real estate, you often receive dividends and get a portion of the profits when the property sells, so it is still both growth and income investing.
How Can I Invest Money for Growth?
The type(s) of growth investment(s) you should choose when investing money for growth depends largely on your risk tolerance.
The most common type of growth investment comes from investing in stocks because they are the most universally-accessible asset class thanks to the advent of apps like Robinhood.
These new investing apps charge no commissions, enforce no account minimums, allow fractional share investing and offer free stocks for signing up.
Another popular growth investment is real estate. It is a tangible asset, often in high demand, and is a relatively safe investment. That said, it does come with its share of risks for those who don’t do their research.
If you can afford it, owning your home is almost always considered a good investment because you’re putting money towards something that appreciates rather than just into the hands of others through paying rent.
In markets where home prices fall or you only intend to remain in place temporarily, renting makes sense.
The amount of risk associated with real estate will vary depending on whether you’re investing in a REIT with a company like Streitwise or investing entirely on your own.
If you are a serial DIYer, you can also consider using the BRRRR Method to build your real estate investment portfolio rapidly.
For those not worried about volatility and some more risk, stocks are among the best options for investing money for growth. When the value of a company increases over time, the price of the shares you own does as well.
This means you can later sell your shares for more than you bought them and make a profit.
You may also want to look into alternative investments. If chosen strategically, investments such as fine wine, blue-chip art and startups can yield significant returns.
Remember, you aren’t limited to just one type of growth investment, so you can always do a mix of safer and riskier options.
Growth vs. Value Investing
Growth and value are the two basic styles when choosing stocks or stock mutual fund investments. Growth investors look for fast-growing companies they expect to continue to grow at above-average rates. These are often, but not always, young companies.
When evaluating stocks, growth investors focus on profit margins, historical and predicted earnings growth, returns on equity, and share price performance.
Investors are willing to buy these stocks even if the price seems high when looking at price-to-earnings ratios. Growth stocks are typically more volatile than the broader market.
Value investors are interested in companies they think are trading under their intrinsic value. Buying undervalued assets and selling them when they eventually become more fairly valued makes a profit.
Stocks can temporarily fall out of favor for many reasons. For example, a high-level figure in the company may have recently had a personal scandal or stepped down unexpectedly.
They can also be artificially depressed for unknown reasons, making some investors significant fortunes if they can identify them. Many use powerful stock research apps to find these mispriced stocks.
If the company’s book value still looks solid, value investors will buy stocks and hope when the scandal blows over, the price goes back to where it was previously.
Usually, value stocks are from well-established companies. This type of investment can sometimes take longer than growth investing, but it’s considered somewhat less risky than the broader market.
Growth and value investing styles compliment each other well and having both can lead to a more balanced portfolio.
How Can I Invest Money for Income?
Investing money for income can be done by investing in a large number of assets. Some of the most popular income investments include bonds, high-yield savings accounts and certificates of deposit and are all generally considered the safest types of income investments.
The latter two even come with FDIC insurance to protect your deposits.
But with this lower risk, comes lower returns. Income investments don’t add very much to your money, especially if you aren’t starting with substantial amounts. That shouldn’t matter, however, if you’re looking to earn investment income you want to spend now.
Some income investments you might consider are:
→ Bonds
These fixed income investments are debt issued by governments, agencies or companies to raise funds for specific or general purposes. In return for the investor providing the investment, the bond issuer promises to pay back the investment, with interest, over a specified period of time.
→ High-Yield Savings Accounts
These savings accounts tend to carry higher yields than traditional savings accounts. In today’s low-rate environment, however, you might be hard-pressed to find a high-yield savings account paying an interest rate that outpaces inflation.
While these provide a high-level of safety with their FDIC insurance, they might not provide enough income to meet your needs. Many people link these to checking accounts and debit cards.
→ Real Estate Crowdfunding
Several platforms allow you to invest in real estate from afar and still earn an enticing yield.
- Fundrise has over 120,000 investors in over 16 different available portfolios, with investment objectives ranging from generating consistent income to maximizing long-term growth, or both. The company invests in a portfolio of numerous commercial real estate investments, providing a broader exposure to the real estate market. Minimum investment of $500 to begin.
- DiversyFund is another option to consider. The real estate investing platform seeks undervalued multi-unit complexes with vacant units and invests the cash flows from existing tenants back into the property to make significant improvements. Things like adding HVAC and hardwood flooring, updating kitchens and bathrooms, laying down fresh carpeting and coats of paint and more. After improving the property, the company looks to sell it for a gain and distributes these earnings back to investors. Minimum investment of $500 to begin.
- EquityMultiple is one more to consider if you’re an accredited investor. This platform looks for commercial real estate opportunities and has earned an average annual return of 14.5% since founding. Minimum investment of as low as $5,000 to begin.
Related:
→ Alternative Investments
Most alternative investments usually involve an illiquidity premium, meaning you should expect a higher return in exchange for not having ready access to your invested funds. Though, not all alternatives are cut from the same cloth.
Some alternative investments offer compelling yields and ample liquidity. Investment options like MyConstant offer investors yields of 4% for placing money on the platform and 6-7% annualized yields for investing in secured loan notes.
As a note, alternative investments can carry complexity, illiquidity and other investment details best-suited for more sophisticated investors. Be sure you understand the investment and risks entailed before committing serious money to any alternative investment.
Should You Invest for Growth or Income?
Consider your investment objectives, age, volatility tolerance, and income level to decide if you should invest for growth or income. Typically, if you’re a young investor looking long-term and have a comfortable amount of money coming in, growth income should be your main focus.
If you’re a teenager learning how to invest, or even a minor looking for investing apps to begin investing, you will likely want to focus on growth investments. Younger investors can keep money invested through volatile times until it reaches a high enough selling point.
If you want returns you can use now, perhaps as you get closer to retirement, income investments should be your primary strategy. Dividend-paying stocks not only provide money faster, but are historically less volatile.
However, for most people, a mix of growth investments and income investments is the best choice so your portfolio is diversified. Make sure to monitor your investments and make any necessary adjustments if your financial situation changes.
Final Thoughts
Diversifying your investments is always a smart idea. Investing for both growth and income provides a balanced portfolio with the potential to make high gains with less risk of losing your hard-earned money.
Consider your age, financial situation, and risk-averseness when deciding how much of your portfolio will focus on each type of investment.
Introduction
As an expert and enthusiast, I have access to a vast amount of information on various topics, including investing. I can provide insights and information based on my training data, which includes a wide range of reputable sources. While I don't have personal experiences or opinions, I can offer well-researched and factual information to help you understand different concepts related to investing.
Growth Investing
Growth investing is a strategy focused on buying assets that are expected to appreciate in value over time. It is a long-term approach that aims to achieve substantial returns in the future. Growth investors typically prioritize capital appreciation rather than immediate income. Common examples of growth assets include stocks, bonds, and real estate. Growth funds often invest in companies that reinvest their earnings back into the business rather than distributing dividends to shareholders. Technology stocks are often favored by growth investors [[1]].
Income Investing
Income investing aims to generate a steady stream of income from investments. The goal is to design a portfolio of income-generating assets that provide dependable cash payouts. These payouts can be reinvested or used for current living expenses. Income investments include mutual funds, bonds, stocks that pay dividends, and real estate. Real estate investments can provide a steady income through rental payments, and real estate investment trusts (REITs) offer a way to earn passive income from real estate investments [[2]].
Growth and Income Investing
While growth and income investing are often seen as opposing strategies, it is possible to have a combination of both in a diversified portfolio. Diversification involves investing in various assets, such as stocks, bonds, and alternative investments, to achieve a balance between growth and income. Real estate is an example of an investment that can provide both growth and income. By renting out a property, you can generate income while also benefiting from potential appreciation in property value over time [[3]].
Growth vs. Value Investing
Growth and value investing are two basic styles when choosing stocks or stock mutual fund investments. Growth investors look for fast-growing companies that are expected to continue growing at above-average rates. They focus on factors such as profit margins, historical and predicted earnings growth, returns on equity, and share price performance. Value investors, on the other hand, seek companies they believe are trading below their intrinsic value. They look for undervalued assets that have the potential to increase in value over time. Value investing is often associated with well-established companies, and it is considered somewhat less risky than growth investing [[4]].
Investing for Growth
When investing for growth, the types of investments you choose depend on your risk tolerance. Stocks are a common choice for growth investments because they offer the potential for capital appreciation over time. Real estate is another popular growth investment, as it is a tangible asset that can appreciate in value. Alternative investments, such as fine wine, blue-chip art, and startups, can also yield significant returns if chosen strategically. It is important to consider a mix of safer and riskier options when investing for growth [[5]].
Investing for Income
Investing for income involves choosing assets that generate regular income. Some popular income investments include bonds, high-yield savings accounts, and certificates of deposit. Bonds are debt instruments issued by governments, agencies, or companies that pay interest over a specified period of time. High-yield savings accounts offer higher yields than traditional savings accounts, although finding high rates in today's low-rate environment can be challenging. Real estate crowdfunding platforms and alternative investments can also provide income-generating opportunities [[6]].
Choosing Between Growth and Income
When deciding whether to invest for growth or income, consider factors such as your investment objectives, age, volatility tolerance, and income level. Young investors with a long-term focus and a comfortable income may prioritize growth investments. Dividend-paying stocks can provide faster returns and are historically less volatile. On the other hand, income investments may be more suitable for those who want returns they can use immediately, such as individuals approaching retirement. For most people, a mix of growth and income investments is recommended to achieve a diversified portfolio [[7]].
Conclusion
Investing strategies can vary depending on individual goals and risk tolerance. Growth investing focuses on capital appreciation over the long term, while income investing aims to generate regular income. However, it is possible to have a combination of both strategies in a diversified portfolio. By considering factors such as risk tolerance, age, and financial situation, investors can determine the right balance between growth and income investments. Remember to monitor your investments and make adjustments as needed based on changes in your financial situation.
