Investment Advice

Investors with this goal in mind typically want a low risk portfolio, maybe because the preservation of their money is more important to them than seeking growth. This can be attractive for investors solely focused on income, maybe in retirement, as low volatility and relative certainty of returns are high up the priority list.

The prospect of growth comes into the picture more here. Income producing assets like bonds might be joined by shares which pay dividends but also offer the chance of capital growth. Many investors used to bonds have felt the need to climb the risk scale into equity income since the financial crisis in 2008, as interest rates plummeted. Seeking a higher level of income than bonds can offer means accepting more risk in the stock market. But one of the advantages of equities is that companies can pay out part of their profits to you as dividends and keep some back to put back into the business. If they can demonstrate that, when the firm reinvests in itself it produces even better profits, you might actually not want a dividend, preferring them to put that money to work instead. This can be helpful if your goals mean you need to focus on the growth side, rather than income.

These portfolios tend to be equity heavy. This can suit younger investors with a long timeframe, like in pension accounts. That long-term view is important in this case as short-term kinks tend to look less menacing and create more of an upward trend over time. As investors get nearer to their goals it can be a good idea to scale back the risk level here, to reduce the possibility of a sudden drop when it comes time to use those investment returns.