The Case For Fixed Income
There are many misconceptions about investing. One is that the terms ‘growth’ and ‘return’ are synonymous. They are not. Total return is a sum of two things: income plus growth, as illustrated in the formula: TR=I+G.
To break it down further, growth comes in the form of capital appreciation, while income is generated through interest and dividends.
For most of your working life, not knowing about this formula is okay. When you’re in your 30s and 40s, it doesn’t matter much if you think growth and return are one and the same. At that age, you’re still in the growth and accumulation stages of life.
You are totally focused on the “G” part of the formula, so it makes sense that you’re investing in things like growth stocks and mutual funds. Of course, you’re also striving to achieve your growth
at a good rate of return, and you’re aware that growth can sometimes turn into an ‘L’ or loss when the market suffers a correction.
You know the risks of investing for growth, but you’re willing to take those risks because, when you’re younger, you still have plenty of time to recoup your financial losses before you retire.