Growth Investment 

You buy a growth investment with an expectation that it will increase in value over time. Examples of growth investments are company shares or property investments.   

Income Investment 

Income investments generally pay regular interest or dividends. This could include dividends from company shares, rental income from property, or interest from a fixed-term investment such as a bond or term deposit. 

What is the right mix? 

How to decide between growth or income investments? For example, if you are seeking a total return of 10% per annum from your portfolio, does it matter what the breakdown is between income and growth? In short, yes, it does. Here are some things to consider: 

Goals and Objectives 

Ultimately your goals and objectives will drive your portfolio’s mix of income and growth investments.  

An example is a retiree client that may have accumulated sufficient retirement assets over their working life, therefore they may have a higher preference for income and capital stability of their portfolio rather than growth. However, some growth is important to protect their portfolio from the effects of inflation.  

Another example is a younger accumulator that may have the main focus of growing their wealth, therefore they would have a higher allocation to growth investments.  

Risk Appetite 

Attitude to risk can also play a part in your allocation to income and growth investments. A risk-averse investor may have a higher proportion of income investments which are generally lower risk than an investor with a higher tolerance to risk. An investor with a larger appetite for risk may be prepared to accept higher levels of volatility with a higher proportion of growth investments.  

Tax 

An important consideration when it comes to the return from your investments is tax. For example, those with higher taxable income would pay more tax on their investment income each financial year. Whereas tax on any capital appreciation in the value of your investments would only be paid if an asset was disposed of. Further, the capital gains tax discount can be applied if the asset is held for more than 12 months, providing a 50% discount. 

Therefore, an investor on a higher tax bracket striving to minimise tax may be inclined to invest a higher proportion of their portfolio in growth assets as a way to defer/minimise tax. 

So what is the right mix for you? At Hewison Private Wealth, we build bespoke portfolios, focused on achieving individual goals and objectives. Discover what your bespoke portfolio could look like by securing a 15-minute discovery call with one of our Advisers. To select your preferred day and time for a discovery call, click HERE.