Oakland, CA | Piedmont; Using Growth and Income Producing Stocks in a Portfolio

Hi, I’m Erik Wolfers. I’m the founder and managing member of First & Main Financial. We’ve been helping clients with personal financial solutions since 2001. Today I’m going to talk a little bit about the difference between growth and income.

We have a lot of clients who like income and they like the income to come into their portfolio on a regular basis— cash shows up and it feels certain. Whereas, if the value of an investment goes up, cash hasn’t shown up and it doesn’t feel quite the same even though the growth investment overtime might be able to be sold in little pieces and generate more cash. Therein lies one of the challenges of portfolio creation—combining assets that may grow and then some that may produce income.

In the stock market, if you’re trying to get a lot of income out of a portfolio—which it’s possible to get 5% or more—the chances of the investment growing are very little. It’s not going to grow much. If you bought a stock that yields 5%, it may keep paying 5% forever, or if the company falls on some harder times and it’s not able to continue to pay 5%, then the price will go down and you’ll lose money—the dividend goes down and you’ve got a loss.

That’s challenging because companies that generate a lot of cash sometimes are in very mature stable businesses like drugs and food stores, that kind of a thing—that just aren’t really growing—but they do generate a lot of cash. There is a lot of consideration that can go into how to craft a portfolio to get growth and income.

Another way of thinking about things, is the concept of total return. You may have aspects of a portfolio that do generate some income and then aspects of a portfolio that grow; and between the two, you can get money out of the portfolio over time, depending on what’s done the best or just held its ground. Income feels good and income feel certain, but it may not at all be the optimal given the circumstances of a client.

We’re here and taking new clients to answer these questions and a help in whatever way makes the most sense. If you are looking for some financial guidance; whether for a one time financial plan or continuing advice on your investments, we invite you to meet with a First & Main Financial planner for a free consultation. We would be more than happy to sit down with you, assess your situation and review our services to help navigate your financial future.