Investing:

Owning or Loaning (Growth or Income) – Risk and Yield

There are two basic investment objectives, Growth and Income.

Growth (Owner) – Potential for big returns

Income (Lender) – Consistent returns (and sometimes principal reduction)

The investments that are right for you at any point in time over your “Planning Horizon” will depend on where you are in life, and your tolerance for risk (tolerance for risk determined in part by your age).

Growth investments such as Stocks, Real Estate, etc, typically bring more risk, but have greater potential for reward.

Income Investments such as Bonds, TDs/Mortgages, lending investment devices, etc, bring less risk and maybe even reduction of risk through payments over time. There is no growth.

When we are young, we can tolerate more risk as we build our estate because we have time to recover if an investment does not work out. We need growth investments to make this happen, so growth investments make sense, in larger proportion the younger you are.

As we age, we need to take less risk as our tolerance for risk declines (we have less time to recover from a bad investment decision), and so income investments make sense.

Your investment portfolio over your working life should be heavy in Growth investments when you are young, sliding to Income investments as you age.

As always, YMMV, but this is very sound, foundational investment strategy.