Investment strategy musings
Posted: December 18th, 2016, 10:21 am
I'm finding it difficult to decide upon an investment strategy because there is such an abundance of information regarding investment returns.
To this end I have purchased a number of books on the subject, but they are yet to be delivered and I have been reading whatever I can find on the internet in the meantime.
The articles I have read (Why Dividends Matter - Gareth Atkinson Funds and Means, Ends and Dividends - Blackrock amongst others) state that the overwhelming majority of the total returns derived from equities come from dividends, and the reinvestment of those dividends. If this is true, why are there so many investments that target 'growth'? If each investor is aiming to maximise total returns (ignoring other objectives such as preserving capital for a moment), then it would be logical to invest predominantly in dividend paying investments. Does the dividend versus growth divide merely distinguish between businesses that are established and have limited opportunity to grow further and those that need to reinvest cash to grow the business?
Looking to a scenario where an investor is trying to build a portfolio to support them in retirement, this can be simplified into a 'building' phase and a 'drawing' phase. During the building phase, the aim must surely be to grow the total capital value as quickly as possible, whether that comes from dividend income or capital growth, or a combination of the two. In order to draw an income come the 'drawing' phase, this could be achieved by investing in income generating investments or by selling growth investments that offer a lower yield.
History seems to show us dividend paying equities are likely to outperform over the long term. Should investments targeting growth just be seen as an alternative to diversify an investment portfolio, or am I misunderstanding the purpose of 'growth' investments? Does it matter all that much anyway?
Thoughts welcome.
To this end I have purchased a number of books on the subject, but they are yet to be delivered and I have been reading whatever I can find on the internet in the meantime.
The articles I have read (Why Dividends Matter - Gareth Atkinson Funds and Means, Ends and Dividends - Blackrock amongst others) state that the overwhelming majority of the total returns derived from equities come from dividends, and the reinvestment of those dividends. If this is true, why are there so many investments that target 'growth'? If each investor is aiming to maximise total returns (ignoring other objectives such as preserving capital for a moment), then it would be logical to invest predominantly in dividend paying investments. Does the dividend versus growth divide merely distinguish between businesses that are established and have limited opportunity to grow further and those that need to reinvest cash to grow the business?
Looking to a scenario where an investor is trying to build a portfolio to support them in retirement, this can be simplified into a 'building' phase and a 'drawing' phase. During the building phase, the aim must surely be to grow the total capital value as quickly as possible, whether that comes from dividend income or capital growth, or a combination of the two. In order to draw an income come the 'drawing' phase, this could be achieved by investing in income generating investments or by selling growth investments that offer a lower yield.
History seems to show us dividend paying equities are likely to outperform over the long term. Should investments targeting growth just be seen as an alternative to diversify an investment portfolio, or am I misunderstanding the purpose of 'growth' investments? Does it matter all that much anyway?
Thoughts welcome.