Investing encompasses a broad spectrum of strategies. Among the most popular ones are income investing and growth investing. Each of these strategies has distinct advantages that come with unique reasons for their implementation.
Income Investing
Income investing primarily aims at generating consistent cash flow. The goal is not necessarily to pick the most promising stock, but to select stable investments that provide predictable returns. This could include dividend-yielding stocks or bonds or even diversified options like Peer-to-Peer (P2P) lending or dividend funds.
Often seen as a form of passive income, income investing enables the creation of a portfolio that yields regular income. By deploying a strategy like dollar-cost averaging, you can start small and gradually build a portfolio that delivers substantial returns. The end goal is to establish a continuous source of income that you could potentially live off in the future.
Growth Investing
Conversely, growth investing is intended to accumulate wealth. The focus here is not to generate immediate income but to identify investments that can potentially grow quickly, expanding the size of your portfolio. This approach is often opted for when the aim is to accumulate capital to be used in the future.
Investments fueling growth are ones likely to experience significant growth in the forthcoming years. They include small-cap stocks and sometimes certain commodities or foreign currencies that could yield high returns. However, while they promise rapid growth, these investments are also regarded as riskier than income investments, posing a threat of significant losses.
Even though income investing also carries a risk of loss, the associated risk is generally perceived as lower. As a result, investments constituting an income portfolio tend to yield smaller yet more stable returns compared to the often volatile nature of growth investments.
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