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Dividend vs Growth Investing

These are the two main routes I’m familiar with that you can go down. Dividend investing focuses on stocks with a reasonable and sustainable yield, giving you a passive income source. Typically the stocks in this realm aren’t going to excite you with high gains and crazy market movements, but the ones with a proven track record are relatively safe investments. That doesn’t mean you can let your guard down, though… dividends aren’t guaranteed and can be cut or eliminated any time, so always keep watch.

On a side note with dividends. Again, can’t stress enough this is just my opinion based on personal experience, but be careful with chasing high dividend stocks. High dividends can sometimes signal a company is in trouble (by high, I’m talking like 10% and up). I made the mistake of doing this myself and ran into a lot of MLP’s and personally, I wouldn’t want to deal with those at all. Mostly because they add to your tax paperwork at the end of the year but also, I haven’t found them to be the best performing of stocks to own. Anything that’s a partnership (MLP or LP) I personally stay away from just to keep things simple and not take a gamble on a more than likely unprofitable asset.

Growth investing works to invest in stocks with a high rate of growth over time. These are the ones that can see some heavy long term gains and even some short term. These stocks don’t typically offer dividends, but rather invests back into itself to grow the value of the company. Good examples would be tech stocks like Amazon and Google… these companies have seen hyper growth over the years and continue to grow as of this writing.

Another good strategy for achieving growth is investing in index funds, mutual funds and ETF’s. These are basically baskets of a large assortment of stocks managed passively or actively. Index funds tend to be passively run and hold less expense to you. They basically track an index (like the S&P 500) Mutual funds tend to be actively managed and while many may perform better for it, they’ll cost you more in maintenance fees. ETF’s often work a lot like index funds. Many track an index and pretty much all are passively managed, so it’s a low expense option. Positions in ETF’s can be bought and sold like stock shares. You can also curb some risk investing in these as the funds are already diversified, so you can skip the work involved in researching individual companies.