Lux Investing

What is growth and income investing?

Public Comments

1. Some companies dont declare much dividend. So the market value of the share goes up. This is growth. Some companies declare high dividends. Here there is more income. Based on your need for income or growth you can appropriately choose the investments.
2. Hi, Kay, Growth investing means you put your money into securities which you hope will grow in market price. The only way you can profit is to wait until this growth happens, then sell the security. Then you must pay the government taxes on your profits. Then you must find another security which you expect will go up in price. Sometimes the price rise happens. Sometimes it doesn't. Sometimes it does, but it doesn't go up as much as the market, which means you in effect lost money, because you could have invested the money into the market as a whole and made an even larger profit. Right now, the market as a whole is only slighter higher than its 1999 high, and prospects for the immediate future dim. (High energy prices, high food prices. Low US dollar. An open presidential election. The looming retirement of 80 million baby boomers. Not to mention the subprime mortgage mess.) Investing for income means you select securities such as dividend-paying stocks and bonds. You do have to pay taxes on this income, but you don't have to sell the securities (possibly at a loss), so you can just keep on putting cash into your pocket, or reinvesting it. Growth investing advocates say that if a company keeps its cash instead of paying it out as dividends, it can grow faster. This is sound theory, but studies have shown that in practice it doesn't work as well as promised. For large periods of the 20th century (1929-1954, 1966-1981) the market didn't grow -- and it's grown very little since 1999 -- but income investors cashed dividend checks through those periods. I'm biased in favor of income investing, most people are totally brainwashed into investing for "growth." best, Rick