Growth and Income Investing

Growth and Income style investing, as the name implies, is a combination of the two strategies of investing, both growth and income. While growth investing focuses on the growth of capital, Income investing focuses on producing current income for the investor.

Growth investing typically involves investment in the stock of companies whose earnings are expected to grow at an above-average rate relative to the overall market. This can be a prudent strategy for investors with an investment time horizon of five or more years, and for those investors who have no need for current income. The primary objective for the growth style investor is growth of capital.

Income investing, on the other hand, typically involves investing in securities or other assets that produce a regular, current stream of income. These investments could be bonds, large capitalization dividend paying stocks, CD’s, annuities, or perhaps certain types of real estate. This style of investing is suitable for investors who are retired and either need or desire additional income.

While we do manage some pure growth style as well as some pure income style portfolios, most of the portfolio’s we manage at O’Donnell Wealth Management are a combination of these two styles. Many investors at, or near, retirement age desire additional income; however, they also want to grow the principal, or underlying investment, over time. This is referred to as Growth & Income style investing.

Not only can growth and income investing serve the dual purpose of providing current income while offering the opportunity for growth of capital; it can also serve to reduce risk and volatility. Generally speaking, the higher the percentage of stocks in a portfolio, the higher the level of risk and volatility. Adding different asset classes such as fixed income can balance out risk factors.

A growth and income portfolio might hold everything from technology stocks to AAA rated Municipal Bonds. Growth and Income style mutual funds are sometimes referred to as “balanced” funds. A balanced fund, for example, might hold 60% of its assets in stocks and the other 40% in bonds or fixed income instruments. There is, however, no set definition of how much a balanced fund may contain of the different asset classes. Fund managers are typically bound by prospectus to maintain particular types of holdings and allocations.

Some investors might prefer the more personal touch of an individually managed portfolio, rather than buying shares of a mutual fund. A personal portfolio manager can custom tailor an investment portfolio to the very specific needs and desires of an individual investor. This can have many advantages over simply purchasing shares of a mutual fund. Just a few of these potential advantages include:

Tax Management

Individual securities can be selected, in specific amounts, to be bought or sold in order to maximize tax efficiency by realizing gains or taking losses as desired. This is not possible in a mutual fund.

Exclusion or Inclusion of Certain Investments

Individual investments or entire industries may be systematically included or excluded from the portfolio based on the individual investor’s social, religious, or philosophical beliefs. Although mutual funds exist that offer investment in specific industries or areas of the market, this level of personal customization is not available in a mutual fund.

Direct Communication

With a private portfolio manager, the individual investor can meet personally with the portfolio manager. This simply does not happen with mutual funds.

Free of Surrender Periods, Penalties and Transaction Fees

Individually managed portfolios typically do not have penalties, transaction fees, or holding periods associated with them, should an investor liquidate or move assets from the portfolio.

Free of Proprietary Products

If the portfolio manager is an independent, he/she would have no incentive or pressure whatever to include any investments in the portfolio that are not in the absolute best interest of the investor.

Independent Research

An independent portfolio manager is free to conduct his / her own independent research from a multitude of different sources, thereby forming a completely objective opinion, free from bias.

This report was prepared by O’Donnell Wealth Management and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.