Image source: Getty Images
For generations, investors have debated whether it’s better to go for growth stocks or share stocks.
I might need to wear a tin hat now, and that’s a very personal opinion. But I would say, with my long-term horizon, dividend stocks are the winners for me.
What people talk about the most is growth sharing. “Have you heard of so and so? They made a million in the stock market overnight and retired to the Caribbean.“
It’s true, I know someone who retired with the income of one well-chosen growth share investment. My mind was not overnight.
But these are success stories. We hear about penny-to-pound winners. People don’t talk much about pound-to-penny losers, or pound-to-nothing sweeps. I suffered those.
He says art is about risk and reward. Growth stocks are more risky, but the potential rewards are higher. An investor with 10 growth stocks can handle double wipes if the others do well.
The division widened
But I’d rather spread the money over 10 stocks that pay good dividends, and that I think have no chance of going bust.
I will follow as an example. Divided heroes, collected by the Association of Investment Companies. Here is a list of all those investment firms that have increased their dividends for 20 consecutive years.
Many of them, including City of London Investment Trust, managed for 55 years. The City of London is paying a dividend of around 5%. And I think its track record should make it one of the safest stocks out there.
At 3%, with stock price appreciation, I think I have a real (if unguaranteed) chance of achieving 8% per year. Ker-ching, I just got a dividend.
“But,A growth seeker might retort,You’ll never get a ten bag that way.He said.
That’s the golden target for many investors, picking a stock that returns 10 times its purchase price. Find a few, the thinking goes, and you’ll more than make up for any losses.
I have two answers to that. One is that we don’t need huge killer investments to create long-term wealth. No, we just want a constant annual return that we can reinvest. And then the magic of compounding can do the rest.
And share investors like me, well, we can get our ten bags. We will take a little longer. Check out my investment trust that returns 8% compounded annually. Every £1,000 invested in it grows to £10,000 over 30 years.
I also pay less in previous years. Growth investors are typically moving in and out of every new prospect. I just pay once and forget about it. Ker-Ching, another dividend is now in.
This is my personal strategy. Everyone should make their own choice, and growth stocks can generate bags of cash. And, of course, the dividend is not guaranteed and may be deducted. I suffered like that too.
Whichever option an individual investor chooses, I think there is one key wisdom that encompasses them all. Pick an investment strategy and stick with it for decades. Ker-ching