Throughout my ten year plus experience and foray into investing, I have always deliberated between opting for growth and opting for monthly income (e.g. cash flow is king). I remember when I bought Visa (Ticker: V) a few years ago during its initial IPO at $65 or so. I remember thinking that I had no idea how well this stock would really do and I was speculating. I remember selling it for $88 after 2009 correction. My mother, who also bought it during its initial release, on the other hand, still has Visa and it is doing very very well.
I must confess, I do have a bit of a gambling nature at heart (I used to love buying scratch and win tickets and I get a bit frenzied even when paying at $5 Black Jack tables in the casino) and have, unfortunately, been burned a few times when following or listening to the latest stock tip when talking to friends. Yes, I’ve bought gold and silver, I’ve bought Suncor (and still have it unfortunately) at its all-time-high, and I’ve bought penny stocks and suffered a huge loss.
I’ve been around the block.
They say the best lessons are the ones you learn yourself and I have certainly learned that dividend and fund investing are the way to go throughout my multiple affairs with the exciting growth stocks.
So when I had to think about what to do with the bit of cash I had sitting in the bank account, I really had to think about it. On the one hand, I love cash flow (cash flow is what makes my net worth updates look good and look consistent for you guys) but I also love the idea of having growth and having a great success story.
Opting for Growth: The Fast and the Furious
It’s almost like I am deeply attracted to growth investing, its so passionate, so full of excitement, so full of the unknown, and so full of uncertainty. However, I know that growth investing can be volatile and unstable. I know that the relationship might not be good for me in the long run, but it might be the best relationship ever.
Opting for Income: Slow and Steady Wins the Race?
And then there’s investments that yield monthly or quarterly income. These guys (especially if you look at exchange traded funds or low cost mutual funds) are less exciting, more stable, and more secure (for the most part). They promise to deliver you something consistently. They promise to give you something on a monthly or quarterly basis. They might not give you the passion or excitement that you yearn for deep at your core, but they give you a sense of security.
Of course, even About.com agrees that the perfect dream investment would provide stability and growth simultaneously… however we don’t often live in a perfect world.
Well, the answer, like all things we encounter in life, isn’t black and white. Just like when you go into a relationship, your preference depends on what your needs are. Your preferences depend on your core values and what you want, what you stand for, and what you feel comfortable with.
When heading into a relationship and the person you are considering is looking for a fling and you are looking for someone to settle down with, it is just not going to work because you are both not compatible. You need to look at your time horizon (short term, medium term, long term) and your individual risk tolerance. If you are an anxious person who doesn’t care to take risks, investing in a risky stock and not sleeping because you stay up worrying about your investment probably isn’t the best idea. Another thing to think about when considering growth versus income investing, as Retire Happy Blog talks about, is the tax efficiency of your investment.
For me I decided to have my cake and eat it too. I went mainly for stability and threw in a bit of excitement in there (albeit a very small amount) to keep the excitement that I need.
Readers, what are your preferences? Are you a growth person or an income person?