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What do you get when you combine growth stocks with dividend stocks? No, it’s not a joke. We’re talking about a type of investment called growth and income funds.
We’ll cover the definition of growth and income funds and when and why investors can benefit from them.
As the name suggests, the growth and income objective for mutual funds is a combination of two parts — one part growth and one part income.
Growth Stock Funds hold stocks of companies that are expected to grow at a rate faster in relation to the overall stock market. Income funds seek to provide the investor a source of income through dividends. Income stock funds are similar and often interchangeable in meaning with Value Funds, which primarily invest in stocks that an investor believes are selling at a price that is low in relation to earnings or other fundamental value measures.
It is important to note that the income portion of the growth and income objective does not strictly limit the fund holdings to income-generating (value) stocks. The income objective of the growth and income fund can also be achieved through fixed income instruments, such as bonds.
To make research and access easier for investors, many mutual funds with the growth and income objective have the phrase “growth & income” in the formal name of the fund.
Prominent and differing examples of growth and income funds include Calamos Growth & Income (CGIIX), which invests in convertible bonds, and Vanguard Growth & Income (VQNPX), which invests in growth stocks and value stocks, with no exposure to bonds.
The term growth and income are thrown around often in financial media outlets but the meaning tends to get lost amidst the noise.
For example, when you hear personal finance guru and radio personality, Dave Ramsey, mention “growth and income” as a suggested mutual fund portfolio holding, he is not necessarily recommending a particular fund but rather and the overall objective, which is quite broad, to say the least.
I like Dave Ramsey but perhaps a greater investment approach to growth and income for many investors, both beginners and advanced, is to can access exposure to growth and income by simply investing in one of the best S&P 500 index funds, which will provide exposure to growth and value stocks, and a good bond fund, which will complete and add to the income side of the growth and income objective while helping reduce overall market risk in the portfolio.
Also, many investors already have funds with a growth objective and an income (value) objective. Adding a growth and income fund could cause too much fund overlap, which reduces portfolio diversification and increases market risk.
Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.
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