When it comes to investing, it helps to understand some of the basic differences between various strategies. Two strategies that are quite common when it comes to investing are income investing and growth investing. Each type of strategy has its own merits, and there are specific reasons for engaging in each kind.
As you might expect, income investing is characterized by the creation of cash flow. The idea behind income investing is not to look for a way to make it big on a great stock pick; rather, it is about choosing relatively stable investments that offer a fairly predictable pay out. These investments can include dividend paying stocks and bonds. There are also dividend funds and other investments, such as P2P lending, that can be used.
Many people look at income investing as a form of passive income. It is possible to build up a portfolio that allows you to see regular income. Use dollar cost averaging, and you can start with a small amount of money and slowly build your portfolio to a point where you start to see real results. The idea behind income investing is to create a revenue stream that can eventually be lived on.
Growth investing, on the other hand, is designed to help you build up a nest egg. Rather than looking for investments that will provide a cash stream, you look for investments that are likely to grow at a fairly rapid pace, resulting in a larger portfolio. With income investing, you are looking to create an income stream that can be used now to meet expenses. Growth investing is often used to amass capital that can be put use later down the road.
Growth investing requires choosing investments that are likely to see dramatic growth in the coming years. Small cap stocks are sometimes considered growth investments. Some commodities, currencies and other investments that can result in big gains are looked upon as growth investments. The thing to remember about growth investments, though, is that they are considered to have a higher risk than many income investments. The chance of solid growth also comes with the chance of big losses.
While there is the chances of loss with income investing, it is generally considered a smaller chance. As a result, the investments that are generally used to make up an income investing portfolio often have smaller returns. However, the returns are usually more stable than what you would see with the volatility of growth investments.
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