Many on Wall Street like to use these terms synonymously, and advisors with stock market-based business models will tell you that investing for growth is the only way to get a reasonable return on your investments. This is simply not true.
It’s important to understand that Growth comes from capital appreciation and usually involves stock market investing—meaning it can be unpredictable. Income, on the other hand, comes from interest and dividends, and can be much more predictable.
TOTAL RETURN = Income + Growth
Now, if you’re in your 20s or 30s investing for growth in the stock market might make sense. However, if you’re at or near retirement, it could lead to trouble.
Here’s what I mean. Let’s say you are recently retired and that growth you’re counting on suddenly turns into a loss, or even worse, a few years of losses.
Would you have to make changes to your lifestyle and learn to make do with less? Would you have to go back to work?
Even worse, would you have to tap into the principal balance of your retirement savings knowing it could lead to you outliving your retirement savings during retirement?
Obviously, none of these options are appealing. Fortunately, there’s another way. Maybe even a better way… Investing for Income.
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