When I talk to people about investing, I often ask them if they are primarily investing for growth or income. Sometimes, they don’t know what I mean by that, so let me use today’s column to elaborate.

Growth Investing

Growth investing often appeals to younger investors with a longer time horizon. When I started my career, my income came from my job. With a small portfolio, I pursued growth investing to expand it with no regard for income generation. All income was reinvested back into my portfolio.

Growth investors can handle the volatility and risks of growth stocks. They have time to recover from market downturns. The focus on long-term capital appreciation matches their future financial goals, benefiting from expected company growth.

Investors with a higher risk tolerance also favor growth investing. They accept price fluctuations and uncertainty for potentially faster market growth. This approach suits those who see potential in sectors like technology or biotechnology, where innovation drives rapid expansion.

Long-term investors are typically drawn to growth investing. They are patient, holding stocks for extended periods. They believe in the eventual significant growth of their investments. Their focus is not on immediate returns but on substantial capital appreciation over time.

Income Investing

Income investing, on the other hand, is often favored by those who rely on income from their portfolios. The classic example of this is retirees or those nearing retirement. However, there are other examples. Consider a person who inherited money, but they have a low risk tolerance and need the income from the portfolio to supplement their income.

Income investors prioritize a steady stream of income, usually through dividends or interest payments, which can supplement their income. The predictability and stability of income-focused investments provide financial security, especially for retirees.

Conservative investors, who have a lower tolerance for risk, may also prefer income investing. This strategy typically involves investing in more stable, dividend-paying stocks or bonds, which tend to have less volatility than growth stocks. The focus on preserving capital while generating consistent returns makes income investing an attractive option for those seeking a safer investment approach.

Additionally, investors with shorter time horizons or immediate financial needs might lean towards income investing. The consistent cash flow from dividends, rental income, or interest can provide the financial resources they need for near-term goals. For these investors, the primary objective is generating income rather than relying on potential price appreciation, making income investing a more suitable strategy.

Transitioning from Growth to Income

If you spend a lifetime investing, you will probably eventually shift from growth to income investing to prioritize stability and regular income. This strategy involves reducing exposure to high-risk growth stocks and increasing investments in stable, income-generating assets. For example, reallocating funds from technology stocks to dividend-paying stocks or bonds can help protect wealth from market volatility.

The focus shifts from growing the portfolio to generating steady income for retirement needs. Investors rely on dividends and bond interest to cover living expenses, reducing dependence on market performance. Gradually adjusting the investment mix allows for a smoother transition to a retirement-ready portfolio.

P.S. If you’re looking for ways to generate high but safe income, regardless of today’s uncertain conditions, consider the advice of our colleague Robert Rapier.

Robert Rapier is the chief investment strategist of Utility Forecaster, Income Forecaster, and Rapier’s Income Accelerator.

Robert is one of the world’s foremost experts on energy and income investing, but his deep knowledge also extends into other profitable segments. Want to learn more about Robert’s money-making trades? Click here.