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Anonymous

18 Apr 2019

General Investing

I have around 10k should I invest in dividend-based or growth-based stocks?

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My answer would be : Why not both? split the 10k into 2 portions. Practical experience aka "skin in the game" is ultimately the best way to figure out what kind of investor you are & what kind of stock suit your investment appetite

Dividend Stocks:

In bad times, a solid dividend stock should still be able to distribute dividends out of its earnings and/or partially draw from its retained earnings which allow investor to stomach the temporary "unrealised" losses while waiting for a recovery in stock prices. Meantime, dividend stocks also had the potential for capital appreciation. If the companies in question are able to grow its Earnings Per Share & consequently increase its Dividends Per Share, this will eventually attract higher valuations. From another perspective, dividend investing is subtely also "growth investing" in disguise, as the company instead of ploughing earnings back, they place dividends in the hands of the investor to decide how to deploy it effectively.

Growth Stocks:

Growth stocks tend to be riskier assets and suitable for people with a longer investment horizon & strong conviction for the companies' growth fundamentals to weather out the frequent fluctuations over time. No point investing in growth stocks if you get easily tempted/swayed to sell whenever prices dipped.

At the end of the day, asset allocation & diversification also factor in. How many eggs ($$$) you want to put across a certain number of baskets (stocks), with each basket possessing its own risk-return profile.

Hello!

Typically dividend-based stocks are better if one feels that the market is going into a recession. The stock price may decline however investors can get the value returned from dividends, while they hold and wait for the stock to rebound.

For younger investors, it might be a better idea to invest in strictly aggressive high growth stocks since generally young investors can afford and are willing to take on more risk for the potential for accelerated returns and faster compounding.

I would say it depends on your situation. Dividend stocks are more favorable for generating income when you already have a good chunk of wealth whereas growth stock are better for building wealth.

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