Investing is not “one-size-fits-all.” Individuals have different goals based on their needs, and there are three main investment strategies - growth, income, or preservation. A growth investor aims to buy at prices that are lower than when they sell. Income investors usually focus on receiving cash from companies that pay dividends to shareholders, or earning interest payments from bonds issued by companies or governments. Those with a preservation strategy may simply want to protect their money.
The effects of compounded returns over time can make a long-term growth strategy a good option to build wealth for future use. Growth strategies can often involve investing in funds that hold baskets of stocks. Stock baskets can provide a broadly-diversified portfolio that may increase in value as the overall economy grows, avoiding single-stock risk that comes with less diversification. The average investor with an income strategy may be in retirement, as interest and dividend payments can help replace income after leaving the workforce. Those who are fortunate enough to have more than they need might use a preservation strategy, perhaps seeking only to match the rate of inflation while minimizing taxes.
Income from stock sales instead of from interest or dividend payments is another investment style. Though retirees may sell stocks when they need income, regular stock sales before retirement may be considered more of a trading activity than a long-term investment approach. Because of the extra risks, time, and costs associated with such activities, active trading may not be the best option for the average investor.
For the average individual building wealth for retirement, a long-term growth strategy is often a good choice. As Social Security and pensions do not usually replace 100% of income, it can be a good option, even for those fortunate enough to have a pension, to still contribute to retirement investments in a personal or work account.
July 7, 2021
Markets Demystified is published the first and second Wednesdays of each month,
and is meant to help readers understand how stock market investing relates to household and personal finance.
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Owner | Aesop Advisor LLC
Aesop Advisor LLC newsletters are for informational purposes only. They do not attempt to predict future stock market moves and are not intended as individual investment advice. Aesop newsletters are not recommendations to buy, sell or hold any asset and are not intended as actionable investment advice or market timing. Equities references generally refer to the overall stock market, though if individual companies are mentioned, it is not a recommendation to buy, sell, or hold shares of the company. Unless otherwise indicated, terms including "stocks", the "stock market", and "market(s)" refer to Standard & Poor's 500 index. All investments involve risk and the past performance of a security or financial product does not guarantee future results or returns. While diversification may help spread risk, it does not assure a profit or protect against loss. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing. The price of a given security may increase or decrease based on market conditions and customers may lose money, including their original investment.