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3 Distinct investing approaches
3 Distinct investing approaches build wealth. Use income investing for a foundation, boost it with solid growth investments, and top up performance when opportunistic speculations present themselves to cap your financial freedom.
Invest income, trade growth, speculate flash
3 Distinct approaches to investing include:
- Income Investing – the wealth foundation!
- Growth Investing – the growth drivers!
- Speculative Investing – the flash, splash and smash!
How do income, growth and speculative investing differ?
Money Choices That Grow Wealth course 250, lesson 7, answers the question, how to income, growth and speculative investing differ? At the end of the lesson, links to related content help you learn more.
What you learn:
3 distinct approaches to investing build wealth. On an income foundation build growth investments and top with speculations to cap your financial freedom.
That method opens doors to greater returns and financial freedom. No other approach delivers a faster or greater personal wealth foundation.
Risk and returns trade off
It is always a trade off to use 3 distinct approaches to investing. Higher performance may be available at higher risk. The best investors know how to manage the trade off. They never made the error of thinking more risk equals more reward. Most often more risk means more downside.
Seeking more or higher returns means having more time and more knowledge to invest. Seeking aggressive investment returns also takes much more account management time.
Avoid spilling money – walk before you run!
When you begin investing, begin with a conservative approach. Investing well takes a lifetime. Think lifelong to be a superior investor. You have lots of time to try any and every imaginable strategy. Rushing into aggressive investing is risky and most often a very expensive mistake. Especially for someone beginning.
To build a portfolio, begin with the basics. Restrict your first holdings to large, established profit producing companies. This give you the best basic investing approach. It assures you begin by building a profit producing portfolio. Making money from the start gives you the best opportunity to enjoy learning to invest. That gives you a money making way to build knowledge and experience at low risk.
Successful investing is a lifetime ride
Don’t be in a rush to establish 3 distinct approaches to investing. It takes time to build. Investors get paid to ride long distances. Years, decades or forever are good investing time frames. Dividing investments between dividend paying, profitable and growing companies works best. Eliminating all others makes picking your investments easier. And makes sure you portfolio always stays profitable.
Imagine picking investments was like picking the best but route to ride. Pick the profitable, growing dividend payers and you know enough to catch the bus that pays you to ride! On the right bus you ride happy making money and get where you want to go! Leave the risks for traders and speculators.
Traders and speculators pay to ride their way in the hope catching a faster bus. They work to beat you to the next stop or two. They may do that. But that approach never keeps them ahead on the investing highway. A lifetime of getting paid to ride always wins.
Growth and speculation can give huge payoffs
But there are opportunities to add to a successful investing strategy. Taking the best from each approach can give you with best of both ways to travel the road to investing success. The 3 distinct approaches to investing give you 3 powerful wealth building allies.
To take this ride we have to buy the bus! Or at least a share in it. But you can get your money out by selling your shares when you wish. In the meantime you also enjoy a stream of dividends. This is my favorite approach to building a quality base for a portfolio.
We have to check that any dividend paying company also makes a profit. Not all do! When income investing, you want to hold companies that can afford to keep paying you! If they pay you more than they make, a dividend cut and plunging stock price is in your future. Always avoid such costly situations!
Look for the investing sweet spot!
Most large, growing and dividend paying companies are solid investments. They provide a dependable return and income stream. There are exceptions but the share price of many such companies trade in a narrow price channel. But they continue to pay you! They are solid, boring money makers! Such investments can serve as foundations for an excellent income portfolio.
When invested that type of company, you may see limited share price growth. Most of your return comes from the dividends. As always, there are exceptions to this generalization. The share price of these companies can and do rise with the general economy. That is often at a pace well behind the leading share price gainers.
There are many happy exceptions. Companies that can and do pay dividends as well as grow faster than the market and economy. These most powerful companies grow in value as they both pay and raise their dividends. That is the sweet spot of dividend investing!
Quality research efforts uncover these get paid to ride opportunities. When getting aboard a dividend paying ride, stay for three or more years. Income investing means holding long-term positions. They are only sold if or when the fundamentals changes. That means we buy to hold these positions for years.
The growth stock express bus climbs faster
The income portfolio bus ride pays but generally climbs low hills, not high mountains. There is a faster way to reach a higher valued portfolio elevation. This is the 2nd of the 3 distinct approaches to investing. We can get further, faster by taking the much faster express bus. A growth stock express bus can climb higher investing mountains.
There are many large well-managed profit-making growing companies that do not pay dividends. These are well managed growth companies dedicated to growing their business. Such successful companies enjoy very nice share price gains over time. But they do not qualify for our investing portfolio because they do not pay us to ride.
Still, growth stocks offer a very nice upside. The great ones can have dramatic stock price increases. Those increases can balloon the value of our portfolio. That make them attractive.
Build income first then look for growth
Although growth stocks offer an attractive upside is comes with challenges. The big challenge is picking the best growth stocks. In contrast, picking the best dividend paying companies is much easier. For that reason begin by building your dividend paying income portfolio.
Think of dividend payers as your investing foundation. You want a broad, deep and wide rock solid foundation. Then set about using that secure foundation as your base to seek growth.
Building a portfolio of growth companies sets you up to ride faster and greater gains. and is the reason to consider investing in and building such a portfolio.
The best driver for your investing ride
On any bus ride, the driver is the most critical person. We want a good driver on any investing bus ride. That is the management. The management job is to get the best return on capital.
The best return on capital can get done two ways. First, by paying us to ride. A nice dividend pays for our investment of capital. Second by paying us with a higher company value.
The company should not pay a dividend when management can grow the company value faster. That means management increases the business value more than a dividend payment. Using capital to grow faster that a dividend payment is good. The best growth companies do that. Those are the ones to pick and ride!
Identifying and investing in growth companies can produce dramatic portfolio growth. There are many solid and growing companies that do not pay you to ride. Rather their management uses the capital to grow the business value. That increase in value gets reflected in higher share prices. That can give us a sweet and very profitable ride.
Invest income, trade growth, speculate flash
Now for the 3rd of the 3 distinct approaches to investing. After building income foundation and growth rides investors can look to speculation. Speculation opens a vast range of possibilities. It is by far the most challenging investment sector.
The upside can be spectacular. But the downside can be total loss! The greatest market risks lurk here. Anyone can get lucky and we will take lucky every time. But intelligent superior investors do the homework and don’t count on luck.
Build growth after mastering income investing
Build the growth portfolio after building your investment income foundation. Only after you have performance from the growth investments should you look further. With base and growth performance consider intelligent speculation.
Intelligent speculation is more challenging than growth investing. And growth investing is more challenging than income investing. Growth and speculation are both less secure. Both have higher potential risks than income investing. There is only one reason to consider either. Done well, they can make you considerable amounts of money!
Speculation in particular opens a vast range of possibilities. It is by far the most challenging investment sector. The upside can be spectacular. But the downside can be total loss! The greatest market risks lurk here. Anyone can get lucky and we will take lucky every time. But intelligent superior investors do the homework and don’t count on luck.
Growth and speculations don’t pay riders
Both growth and speculations do not pay you to ride. As you are not getting paid to ride, your total return depends upon that share price increasing. To do either well takes more knowledge and demands more time. The rides can be exciting but short. At least short compared to the many years or decades we ride income investments. Some do run for years but not most.
Growth stock gains covers a huge range. As the investor gets more aggressive the risks compound. Learn risk management from an experienced knowledgeable investor. Learn for someone that does it well as not all do. This is a big topic. Future White Top Investor lessons will discuss the many details.
Ride speculative rockets for explosive gains
After you have income and growth investing knowledge should you look at speculation. To speculate well needs much more knowledge and time. Along with the time needed, risk increases can be dramatic. Total losses are possible.
Speculation is not the place for a new investor. The right speculative situation can produce explosive portfolio gains. Explosive stocks can also blow up without warning. Such an explosion can cause serious damage or even sink a portfolio.
Be careful out there! It is a lifetime ride to learn and build 3 distinct approaches to investing and construct your own Pyramid Portfolio!
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Use White Top Investor lessons to learn investing. By doing that you can grow into a knowledgeable, comfortable and confident investor. To learn how, you can learn investing one small step at a time at your own pace. Do that and become the master of your financial security and independence. White top Investor never sells or shares our email list. Learn more.
Money Choices That Grow Wealth,
lesson links:
Introduction to Money Choices That Grow Wealth Lesson 1
3 Stock market approaches Lesson 2
Income, value and growth investing Lesson 3
3 Distinct investing approaches Lesson 4
Aggressive trading chases profit Lesson 5
Momentum investing trading play Lesson 6
Speculation returns for big risks! Lesson 7
Risks complicate spectacular returns Lesson 8
Speculation failures improve investing Lesson 9
Middle trader thinking differs Lesson 10
Investing trading and speculating differ Lesson 11
Buying ETFs accelerates returns Lesson 12
Next lesson 5:
Aggressive trading chases profit
Have a prosperous investor day!
Bryan
White Top Investor
[email protected] WhiteTopInvestor.com
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About the Author Bryan Kelly
Bryan Kelly uses White Top Investor to share his extensive investment knowledge and experience. He introduces strategies like the No-Worry Investor and the Index-Plus Layered Strategy, which encourage investor growth through personalized investment plans aligned with their unique circumstances and goals. By helping investors make money work for them and avoid common pitfalls, he aims to support the individual growth of wealth-building investors who can create secure, comfortable financial independence. With decades of experience, Bryan is committed to making stock market success accessible to anyone ready to take control of their financial future. The About page shares the story of his daughter's question that inspired the creation of White Top Investor.
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