Growth Investing vs Dividend Investing

Investing in the stock market provides various options to investors to generate wealth in the long term. When choosing among the different approaches to investing, two main options are investing for growth and investing for income. Both offer advantages and disadvantages.

Growth investing focuses on companies that are expected to appreciate in the future, leading to potential gains in the stock value. These are generally companies in rapidly expanding industries such as technology, biotech, or renewable energy. The goal is to invest in these companies and sell them for profit in the future.

Dividend investing involves choosing companies that have a history of paying steady dividends to shareholders. These companies tend to be more established and mature, with the ability to provide consistent cash flow. They might not grow as fast as growth companies, but they distribute profits directly to investors, providing a steady stream of income.

In my opinion, I prefer to invest in companies and ETFs that pay consistent dividends while also investing in a few ETFs that can provide growth. I don’t think it is necessary to have more than 1–5 ETFs for growth. ETFs may be better for growth than individual stocks because the risk is reduced significantly. When investing in growth stocks, there is the risk that the company will become bankrupt or fail to execute on its promises. Growth stocks do not provide any kind of protection if they depreciate. You have the same risk with dividend stocks as well as the company eliminating or reducing the dividend. No investment is completely without risk but dividends may help lower risk because they can still provide income when stocks are down. All the individual stocks I buy produce dividends.

I also believe it is better to have cash flow you can count on rather than a one time profit from selling growth stocks. I personally invest in growth in my retirement accounts with the intention of moving those profits into my taxable accounts to boost my passive income when I retire. In a taxable account you may use dividends for several different purposes. You can use dividends to invest more, pay for bills, pay for vacations, or whatever else you would like to use them for.

In conclusion, both growth and dividend investing have their own advantages and disadvantages. One is not necessarily better than the other but both strategies may be beneficial to include in a portfolio. Just like you can make 10% per year from appreciation, you can also make 10% per year from cash flow. The difference is that the appreciation can not be predicted or counted on like the cash flow can. Another thing to keep in mind is that if you only have appreciation, you haven’t made any money until you sell and then you will no longer own the asset. If you have cash flow, you get paid for owning the asset which allows you to live off the dividends if you never sell.

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