How to Balance Growth, Income and Stability for Your Investment Goals

One of the most important things you need to consider when you’re investing your money is how you’ll prioritize growth, income and stability. Your investment goals are a crucial part of your priorities: why are you investing?

Investment goals examples include:

• Buying or building a house
• Buying a vacation home
• Starting your own business
• Paying for college for your children
• Retiring at a certain age

As you’re making decisions about your investment objectives, you’ll also want to think about:

• When you’ll need the money. This period is often called your “time horizon,” and it can vary depending on whether your goals are short- or long-term. For example, you may want to buy a home within two years, help your oldest child pay for college beginning in 12 years and retire in 20 years. 
• How much risk you’re willing to take. Generally, taking higher risks in investing may mean you can get bigger returns. But if the thought of losing money makes you feel worried, stressed or anxious, it might not be worth the tradeoff.
• How you can access the money. “Liquidity” refers to how easily and inexpensively you can get cash if you need it. Money in a savings account is highly liquid — you can withdraw it quickly without much difficulty. Money in your home’s equity is less liquid. You must either sell your home or apply for an equity line to be able to use it. 

Once you’ve considered your goals, time horizon, risk tolerance and liquidity needs, you can start to think about the right balance of growth, income and stability in your investment strategy.

1. Growth

Growth is the increase in the value of an investment. It’s also called capital appreciation. When your investment grows, you can sell it and make money. You can also hold onto it, and (hopefully) it keeps growing.

Growth is generally the focus when you have a long time before you will need the money you’re investing. For example, younger people who are focused on investing to save for retirement may want to emphasize growth, but growth typically means more risk. When people talk about income investing vs. growth investing, they are usually looking for ways to balance this risk.

2. Income

Income is payments of interest or dividends you receive periodically. You may choose to spend these payments or reinvest them, based on the type of investment and other factors. 

People who are retired often focus on income. They invested their money throughout their careers, and now that they aren’t working, they need to rely on a steady income stream from their investments. 

Even if you’re not retired, you may want part of your investments focused on income generation. Paying attention to income vs. growth investing can help balance the higher risk of growth-oriented investments. 

3. Stability

Stability focuses on protecting the money you’ve invested. You might hear it called “capital preservation” or “protection of principal.” 

With stability, the focus is more on not losing money rather than gaining money. Stability is essential when your investment holds money you’ll need soon. For example, if you’re getting ready to buy a house or your child will be starting college soon, you’ll probably want an investment centered around stability.

How They Work Together

Growth, income and stability are all related when it comes to your investments. A stronger emphasis in any one area means more tradeoffs in the other two. Emphasizing two areas, such as growth and income funds, means less emphasis on the third, stability.

You may have multiple financial goals, and it might make sense to target different investments toward different goals, or even the same goals with different timelines. For example, your toddler’s college fund might be focused on growth, while your teenager’s might need stability. 

Connect With a Professional for Investment Advice

There’s a lot more to consider when you’re trying to meet your financial goals. Things like your tax bracket, the amount of money you can invest and whether you’re investing a lump sum or adding to your balance over time all come into play. Luckily, you don’t have to figure it out yourself.

Farm Bureau financial advisors understand investments. They can provide investment objectives examples and can work with you to put together a portfolio based on your goals. Connect with an advisor today and start building a strategy for your future.