Income vs Growth Investing

Being intentional about your wealth requires understanding how best to achieve your financial goals. While there are various products offering/strategies to invest, understanding which best suits your goal could define the success of your goals. Investing goals are dynamic and vary widely across age, financial capacity amongst other attributes, however, most goals are income or growth related.

Creating a college fund, investing for retirement are amongst growth related goals, they typically have no short-term cash out flow expectation and span over 10 years. On the other hand, funding your lifestyle expenses from investing is income related due to the short-term cash outflow expectation from the investment.

Investing to achieve income or growth-related goals differ significantly, and defining what products, securities or approach best achieves your goal optimally can greatly determine the outcome of your investment.

Income Investing: A Steady Stream of Cash Flow

Investing to meet income goals prioritize regular cash flow over capital appreciation. You should seek investments that generate a consistent stream of income, such as dividends from stocks and funds, coupon from bonds, or rental income from real estate. This approach is ideal for individuals who would like to rely on investment income to supplement their lifestyle expenses.

Here are some popular income-generating investments:

 

Investment	Description
Dividend-paying stocks	Companies with a history of paying regular dividends are favored for income investing. These dividends represent a portion of the company's profits distributed to shareholders periodically. Large corporations that have operated for multiple decades (e.g. Coca Cola, Zenith Bank) are known for their reliable dividend payouts.
Bonds	Bonds are essentially debt instruments issued by governments and corporations. They offer a fixed interest rate paid periodically until the bond matures, at which point you receive your principal back. Government bonds are generally considered the safest option, while corporate bonds can offer higher yields but come with additional credit risk.
Termed Deposits	Termed Deposit are essential debt given to financial institutions for a short period of time, typically less than 365 days and provide interest income either periodically or at the end of the tenor.
Real investment trusts (REITs)
Rental Property	Rental income from owned real estate properties can serve as a source of stable income. Mutual Funds
Mutual Funds/ETFs	Non-money market mutual funds typically payout dividends to fund holders periodically from the growth of the funds.

 
Crafting an Income Investment Strategy:

Set your required periodic income: Calculate how your expected periodic cash flow needs from your investment.

Cash Flow Matching: Screen investments with income payout that match your cash flow needs.  
Prioritize stability: Income investors should focus on investments with a history of consistent payouts and low volatility.

Growth Investing: Aiming for Capital Appreciation

Growth related goals, on the other hand, are expected to be achieved over a long period, which requires prioritizing long-term capital appreciation over current income. Achieving long term goals adds additional complexity as factors that influence investing are more uncertain over a long time. Investments with high growth potential or grow in line with inflation, even if they don't pay dividends should be sought to meet these goals.

The expectation is that the value of these companies' stocks will increase significantly over time, resulting in substantial capital gains when sold. Essentially longer goal durations afford high growth/high risk investments.

Selecting high growth investments can be tasking and requires significant resources to identify and manage various opportunities. There are however products and strategies that align with this investing style and make them easy to adopt.

Here are some characteristics of companies that attract growth investors:

Investment	Description
Growth Funds	Growth funds invest in a diversified portfolio of growth companies and opportunities. These funds can be invested through ETFs, Mutual Funds or Private funds. The performance of these funds are highly dependent on the skill/approach of the manager.
Stocks	Companies are usually the main investments for growth, and some companies have potential to grow significantly over time. Selecting these companies however requires more technical skill and time resources.
Market Indexes	Indexes are a low cost and efficient approach to growth investing. The broad market index is a diversified portfolio of assets that grow. Data shows that indexes also perform better than most managers over a 5 year + period.
Speculative investments	Growth investing spans risky investments to uncertain investments. Depending on an individual’s goal duration or age, financial and risk capacity investing in speculative investments can produce super high returns. Untested ideas like startups, or speculative assets like cryptocurrency may provide such growth if investors are suited for these investments and fully accept the risk associated.

Building a Growth Investment Strategy:

Embrace higher risk: Growth stocks are inherently riskier than income-generating investments. Be prepared for potential volatility in the short term.

Invest for the long term: Growth investing is a marathon, not a sprint. Don't get discouraged by short-term market fluctuations.Stay informed: Keep yourself updated on industry trends and company developments to assess the long-term growth potential of your investments.
The Balancing Act: Combining Income and Growth

Ultimately, the ideal investment strategy depends on your individual financial goals, risk tolerance, and investment horizon. Consider consulting with a wealth advisor to create a personalized investment strategy that aligns with your unique circumstances.