Whenever you talk to a financial adviser about investing they always ask you whether you are investing for income or growth, don’t they?
If you are anything like I used to be, you will look at them as if they are asking a stupid question and answer “both?” – with a question mark in your voice as if you think that is the wrong answer.
Well in a way it is.
And in another way it isn’t.
Allow me to explain…
Investing For Income
If you tell a financial adviser that you want to invest for income, they will look to invest your money into cash savings or bonds.
These are relatively safe places to stash your cash and they will pay interest on your savings or bonds at regular intervals to provide you with the regular income that you seek.
But neither cash nor savings are going to increase in value substantially.
Indeed, after taking account of inflation, your cash savings could actually be falling in value.
Unlike cash, bonds can go up or down in price, like shares can.
With bonds, you can also lose your money altogether, if the company or Government that issues them to you goes bust.
This is not that common, but it does happen.
Investing For Growth
If you tell your financial adviser that you want to invest for growth, then they will look to invest your money in the stock market.
They will then proceed to recommend “products” called unit trusts, which are a form of mutual fund.
In other words, the money you invest will be pooled with the money from other people to form one big fund.
The fund manager (an investment company) will then decide how best to invest this money.
The fund manager will invest the fund monies into shares of 70-80 different companies to create a portfolio.
The shares that they buy will depend on the investment strategy of the particular mutual fund you are investing in.
On the face of it, this may seem like a good approach and, for those of you that are happy giving your hard-earned cash to someone else and paying them to invest it for you, it can be a good idea.
But if you are anything like me, I hate paying people to do something that I can do myself.
The Problem With Mutual Funds
The problem with Mutual funds is that you are paying someone to put your money into investments that you can buy yourself, most of the time.
So the expertise of the fund manager, in terms of what to buy and when, is what you are really paying them for.
But the experience of most buyers of mutual funds is that the fund managers are rubbish at investing our money.
I have held mutual funds for nearly 20 years now – these were what were recommended to me by a financial adviser when I first had some spare cash to invest.
But I have to say, the performance of those funds has been very disappointing indeed.
It is true that the money I invested has risen in value.
But the returns I have enjoyed have been dwarfed by the returns I have made from investing directly in shares myself.
The only reason I leave my money there is because it is now invested into foreign markets that I can’t access easily myself.
To Grow Your Wealth You Need To Grow Yourself
The day I started to have faith in my own ability and started investing in shares was the day that I started to grow a substantial nest egg for myself.
I only invested small sums to begin with, until I built up my confidence, and this is the best way to start.
By following my convictions, I proved to myself that investing in the stock market is no way near as complicated as it at first seems.
Yes, I had to learn some new things, but this was good fun because I enjoy learning.
What I wasn’t ready for was how good I felt when my investment choices came good just when the so-called “stock market experts” were saying otherwise.
In time, I developed a healthy skepticism of what I read in the newspapers and shares magazines and developed a confidence in my own ability and investment common sense.
I soon lost count of the number of times I read a share tip from a so-called expert, only to see the shares in that company take a bad turn for the worse soon after.
I also lost count of the number of times I read about a share that was doomed for failure and to be avoided, only for me to disagree, buy it anyway and prove myself right!
In short, investing in shares made me grow as a person.
I grew my knowledge of investing.
I grew my knowledge of business.
I grew my confidence.
I grew my freedom.
I grew so many aspects of myself that I can’t list them all here!
I’ve had a lot of fun with my own investments and I am no way near done yet!
Do You Want Income Or Growth?
So when the financial adviser asks you what you want, what are you going to say?
To the financial adviser, it is income or growth, because that is how they see the world.
To me, “both” can be the right answer, as long as you know what you mean when you are answering the question.
I invest my money into shares that provide income from high dividends.
I also invest my money into shares that don’t produce any income but could potentially multiply in value several times over.
In other words, I split up my investments into different baskets and apply different strategies for each.
And you could do the same.
But you will have to grow as a person to cut the umbilical chord from your financial adviser!
Are you ready yet?
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