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.
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Table of Contents
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”.
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.
Related: 10 Best Fidelity Funds to Buy
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).
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 distributions and get a portion of the profits when the property sells, so it is still both growth and income investing.
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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.
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 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.
Income-Generating Options
→ 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 real estate investing 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.
EquityMultiple is one more to consider if you’re an accredited investor. This platform looks for commercial real estate opportunities and has earned a double-digit average annual return since founding. Minimum investment of as low as $5,000 to begin.
Related: 10 Best Fundrise Alternatives [Accredited & Non-Accredited Apps]
→ 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.
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. 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.
Related: 9 Best Monthly Dividend-Paying Stocks to Buy
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Related: 6 Best Stock Recommendation Services [Stock Picking + Tips]
Stock recommendation services are popular shortcuts that help millions of investors make educated decisions without having to spend hours of time doing research. But just like, say, a driving shortcut, the quality of stock recommendations can vary widely—and who you’re willing to listen to largely boils down to track record and trust.
The natural question, then, is “Which services are worth a shot?” We explore some of the best (and best-known) stock recommendation services.
Related: 12 Best Long-Term Stocks to Buy and Hold Forever
As even novice investors probably know, funds—whether they’re mutual funds or exchange-traded funds (ETFs)—are the simplest and easiest ways to invest in the stock market. But the best long-term stocks also offer many investors a way to stay “invested” intellectually—by following companies they believe in. They also provide investors with the potential for outperformance.
So if you’re looking for a starting point for your own portfolio, look no further. Check out our list of the best long-term stocks for buy-and-hold investors.
Related: 9 Best Monthly Dividend Stocks for Frequent, Regular Income
The vast majority of American dividend stocks pay regular, reliable payouts—and they do so at a more frequent clip (quarterly) than dividend stocks in most other countries (typically every six months or year).
Still, if you’ve ever thought to yourself, “it’d sure be nice to collect these dividends more often,” you don’t have to look far. While they’re not terribly common, American exchanges boast dozens of monthly dividend stocks.
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