Honestly, truth be told, most folks really don’t know the difference between growth investing and income investing.
There are so many folks who invest their money each and every pay period into their company 401k plan or 403b plan and don’t have a clue as to what’s really going on. All they know is that they are trying to do the right thing and save for their retirement.
Some employers try to provide their employees with some sort of investment guild to help them with proper investment selection, but the problem is that most investment guilds assume that most people already have some investment experience from the start.
You see, most so-called smart people can’t imagine how the average person is so ignorant to the basic understandings of investing. It’s like you can’t imagine that 50 percent of all grown folks can’t name all the 50 states in the United States. It’s true, but who wants to acknowledge that fact? No one.
No wonder most people are invested in the wrong type of investment vehicle and coming up short with their dollars.
Growth means to build. Any time you’re growing something or building anything, the first thing you must know is, it takes time. It’s no quick fix. It’s like nature. Remember that you did not grow into an adult overnight. There are always some good days and some so-called bad days. There’s sunshine and there’s rain. Over the years you’ve cried and you’ve laughed. Growth takes time.
When you invest in a growth business, whether it is real estate, stocks or mutual funds and the goal is to grow your money, don’t expect to receive a check in the mail every time your investment makes money. Why? Because it’s a growth investment, and the money that’s made is supposed to go back into the business so the total value of the investment will increase.
It’s kind of like, if you want your hair to grow long, you can’t accomplish that goal if you get a haircut every week. It’s that simple, although some of us won’t see the light. Don’t be afraid of growth, it’s your birthright; we were all created to grow and gain knowledge. To stay stagnant is a sin. We should be forever growing in thought and viewpoint. Growth is good, and in order to grow there must be change. Look at nature: Have you ever seen a good tree with one branch? Have you ever seen a good orange tree with only one orange hanging on it? No, a good tree is full of branches and oranges, and every season it grows more. So what is income investing?
Investing for income should come after you’ve accomplished your goal of growing your money. Imagine planting an orange seed, cultivating and nourishing it to become a big orange tree that serves you beautiful, tasty oranges. This is how income investing works at its best. In other words, if you expect to live off dividends and interest, (oranges) you’d better have a big tree (big money saved) with plenty of oranges that grow year after year.
Here’s another example: If you buy a bank Certificate of Deposit (CD) that promises to pay you 5 percent interest for the year, and you deposited $10,000, you’d receive about $500 per year, surely not enough to live comfortably. On the other hand, if you grew your tree or your money into a million dollars, the same 5 percent interest would pay you $50,000 per year, which is enough for some to make a decent living.
The point here is that you have to have something to work with first before you can take something out. Grow your money, build your nest egg, grow your tree (your money) first. The bigger your tree, the more fruit you’ll be able to pick from it. Heck, you’ll even be able to serve and help others as well.
Robert Henderson Jr. is a Certified Financial Planner and the author of The New Underground Railroad, www.newundergroundrailroad.com. He can be reached at 305-825-1444.