Where you should invest your money in is always a great question and two types of stocks you can invest in are growth stocks and income stocks. Growth stocks are stocks that are expected to continually grow. Income stocks are stocks that provide a consistent income stream. Which one should you invest in?
Growth stocks refer to companies with growth potential. Where there is growth, there is growth with stock prices. These stocks tend to experience volatility however investors will see this as a potential to grow their investment and take on the risk. These companies usually do not pay out dividends rather they use any extra money to grow the company. Take for example Tesla. Tesla doesn’t pay out a dividend and has much volatility, but the hope is that the company will continue to grow along with their stock price. Companies can experience rapid growth but they also can experience rapid decline.
Income stocks refer to companies that pay dividends to shareholders on a regular basis, typically quarterly, with money leftover from their operations. Instead of putting that money back into the company, they will give a quarterly dividend to their shareholders. Companies won’t experience as much volatility as growth stocks and because it provides a quarterly income, this is ideal for investors who are conservative who don’t like the constant volatility. The downside is that the stock price won’t see as much growth. Take IBM for example. IBM has a 4.56% annual dividend yield but their stock price doesn’t experience growth like a growth stock does. If you had 1000 shares of IBM and with a 4.56% annual dividend yield, you will receive approximately $6,554 per year in dividends.
So which is better to invest in…Growth or Income stocks? That’s a question you have to answer yourself. It depends on what your goals are. Are you trying to see rapid growth and are okay with volatility along the way and a potential risk that you might not see growth at all? Or are you trying to be conservative and are okay with little growth but know that you will see quarterly dividends?
What’s even better is if you can find a stock that has growth and income. Are there stocks that have these qualities. It’s difficult to find stocks with rapid growth and a large dividend yield. However, there are companies that have experienced growth and have a smaller dividend yield (better than nothing right?). Take Costco for example. Costco has seen growth and has a 0.84% dividend yield.
I have a diverse portfolio with both growth and income stocks. I cannot emphasize how important diversification is especially in a time of volatility. Growth stocks can go down as fast as it went up. I invested in Tesla after their stock split but at a high price thinking that the EV industry will boom. I’ve been negative ever since but that’s the experience of a growth stock. I also have income stocks where I am receiving dividends each quarter. This has given me a sense of balance knowing that I’m negative on growth but will be receiving income from the other. If you’re at a younger age, maybe you are willing to risk volatility because you have time to rebound if you go negative. If you’re older and need more stability, maybe you don’t want volatility and just want a steady income stream. Whichever boat you may fall under consider diversifying your portfolio. Before you invest, know what you’re getting into and consult with a financial advisor if you’re not comfortable doing this on your own. If you are interested in following my journey, email subscribe to get alerts of latest posts or follow me on Facebook, Instagram, and Pinterest.
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