Income investing is a popular strategy among older investors because it is seen as being less risky than growth investing.
Income investors typically buy stocks that pay high dividends, interest paying bonds and Certificates of Deposit issued by banks. The dividends and interest payments are a dependable and steady source of income.
An income investor today can create a portfolio paying 5% in annual dividends and interest, for example. With a $2 million account balance and a 5% yield, an income investor receives $100,000 per year in interest and dividend payments. If they can live off $8,300 per month in retirement, those payments provide all the cash they need and they never have to touch the $2 million principal. This income investor would not have to worry about their account declining in value due to market volatility. Sounds appealing, right?
A growth investor on the other hand looks for investments that have the highest annual investment returns. The best returns are found in the stock market. People who invest in S&P 500 index funds can expect 10% annual investment returns in the long-term (10 years or more). Those returns are not consistent, however. The stock market very rarely goes up by 10% in any particular year.
Results for the last five years illustrate this point. The average annual return for the S&P 500 was 14.5% for the last five years, but only one year (2025) was even close to the average.
2025 17.9%
2024 24.9%
2023 26.3%
2022 -18.2%
2021 28.8%
Income investors don’t like the risk associated with the volatility of the stock market.
Most investments other than cash or guaranteed income funds carry the risk of short-term losses, because all financial markets are volatile.
In 2022 and 2023, investors learned that bonds can and do lose value in the short-term. Those investors were probably not expecting to suffer through short-term losses in their bonds of roughly 16% in 2022 and 2023. As of early 2026, bond prices have still not recovered those losses.
Dividend paying stocks are still subject to the ups and downs of the stock market. Dividend paying stocks are about 20% less volatile than growth stocks but that still could mean declines of 30% or more in a bear market.
There is a big difference, however, between short-term volatility—which produces short-term losses—and bad investments that lose money in the long term.
Long-term losses or permanent losses happen when someone invests in an individual stock and that company goes out of business or loses significant portions of revenue to a competitor. Permanent long-term losses can destroy your retirement plans.
The last risk factor—the risk of low long-term investment returns— is the risk that’s not talked about enough. Bonds do provide a little less short- term loss risk than stocks. But that lower risk of short-term loss comes at a cost: investors are dramatically increasing the risk that they will not create an investment account with enough money to retire comfortably and securely. And investors need to know that lower short-term risk does not equal no risk. Bonds lost a lot of money in 2022 and in 2008.
In our example of the retirement investor with a $2,000,000 portfolio earning 5% per year, their income investing plan does not protect them against inflation. They might be able to live off the interest and dividends in the first year of retirement, but with inflation that budget could be 25% higher in ten years. Just like the growth investor they would be forced to tap into the principal balance of their investments.
Let’s compare a growth investor to an income investor with the same starting account balance of $2,000,000 at age 65 entering retirement. Both start with the same annual income needs of $100,000 per year that increases by 2% per year for inflation.
Growth | Income | |
Investor | Investor | |
Average Annual Returns | 10.0% | 5.0% |
Balance at Age 75 | $ 3,469,050 | $ 1,905,028 |
Balance at Age 85 | $ 6,903,059 | $ 1,570,263 |
This is why I never understood income investing. In my mind, the risk of low returns outweighs the risk of short-term volatility.
Income investing is a little easier. Growth investing requires more effort for cash management in retirement to minimize the impact of stock market volatility. But that effort is well worth it – over $5,000,000 in our example.
My Growth & Safety investment system provides even higher returns and lowers downside volatility by protecting against losses in severe bear markets.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
As of Thursday 1/22, the market has rebounded from the latest tariff volatility coming out of Washington – Tuesdays losses have been recovered.
The chart below shows the price changes for the S&P 500 and the Nasdaq since the beginning of last year.
You can see the big drop early last year during the first tariff scare. You can also see the huge gains from late April through late October last year. The S&P gained over 30% during that run and the Nasdaq gained over 40% over those six months.
For the last three months, that rally has stalled out. Prices are basically flat from the end of October until now. This is not unusual as markets need to pause to digest the huge gains.
The AI/technology trade was behind the drop in November. AI stocks and tech stocks have since recovered those losses.
January is a good time to take a step back and look at some longer-term trends.
Stock market gains have been exceptional over the last three years – way above normal. Here are the average annual returns compared to long-term averages (normal returns).
2025 Last 3 Years Normal
S&P 500 17.9% 23.0% 10%
Nasdaq 21.9% 31.5% 12%
A risk for investors after terrific performance like this is to become overconfident. Everyone starts to think they are a market genius at times like this. The stock pickers think they can't lose and take on too much risk. Don't get fooled and stay disciplined with your investing.
AI spending and AI expectations have been the main driver of this recent outperformance. AI investments have been massive and are a big driver of the US economy at present.
If AI expectations deliver on the promise, these gains are justified and could continue. If the impact of AI disappoints, the market could take a hit. This is why the market has reacted so quickly to all AI news.
Job growth has slowed and is now pretty flat. The inflation reports show price increases running ahead of Fed desires, but the rate of increase is pretty stable.
If job losses accelerate, we can expect some modest rate cutting from the Fed. Fed cuts will minimize the impact on stock prices from an increase in unemployment.
My stock market valuation gauge indicates that the stock market (S&P 500) is still about 25% above its fair market value. Short of some news about big productivity increases from AI, it will be difficult for stocks to climb much higher at these valuation levels.
I do not trade based on market valuation levels and you should not either. It is just a reminder that you need a strategy in place to protect your savings in case we experience a bear market. Older investors in particular need loss protection during stock market downturns.
My investing system comes with built-in loss protection. It is designed to avoid most of the losses in bear market meltdowns. But it also produces big gains in bull markets. You can now invest in my system directly from your brokerage account. Click on this link to get on my calendar to learn how to start using my Growth and Safety fund.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
Stock market collapses like the one in 2008 create fear in all of us. Some people were so afraid that they sold all their stocks near the bottom and decided to avoid stock investing altogether.
That was a costly mistake.
In the 17 years since the end of the financial crisis, the S&P 500 has grown at an average rate of approximately 14% per year—one of the best 17-year periods in market history.
Fear is dangerous when it comes to investing. But so are greed and overconfidence.
After the last few years, many investors are feeling pretty good about their performance. Stock market returns for 2023, 2024, and 2025 were excellent—one of the best three-year periods in history. My go-to index funds remain the S&P 500 and the Nasdaq-100. Just look at these remarkable gains.
INDEX FUND PERFORMANCE (2023–2025)
Year | S&P 500 | Nasdaq-100 |
2023 | 26.3% | 54.9% |
2024 | 24.9% | 25.6% |
2025 | 17.9% | 20.8% |
Total (Not Compounded) | 69.1% | 101.3% |
Compounded Return | 86.0% | 135.0% |
3-Year Average Return | 22.7% | 32.4% |
Banking these kinds of gains is fantastic and does wonders for our retirement accounts. However, we must be careful not to overreact and let greed take over.
The average annual returns during this three-year period were roughly double what we should expect over long-term market cycles. History shows that periods of exceptional outperformance are often followed by periods of underperformance, bringing long-term averages back toward more normal levels.
Overconfidence can lead investors to chase returns—and that often results in major mistakes. Overconfident investors lose discipline. They begin to believe that recent high returns will continue indefinitely and take on too much risk at exactly the wrong time.
Many of you have followed my recommendations over the past few years and generated tremendous gains. Several of you have told me that you made more money in the last three years than in your entire investing lives. That is incredibly gratifying.
The best investors do not make emotional decisions. They don’t panic during downturns or get carried away during market surges. The best investors are prepared for all possible scenarios.
Many of you have also shared that your recent success has sparked a deeper interest in investing. You’ve been reading my articles and books, along with content from other investment strategists. That’s terrific. The more educated you are, the better your investment decisions will be.
Recently, however, I’ve noticed that some of you are experimenting with buying individual stocks. While this can be educational, it also carries a significant risk—overconfidence.
We can all feel like investing geniuses during powerful bull markets when nearly everything is rising. Anyone who owned some of the “Magnificent Seven” stocks over the past five to ten years made a lot of money.
But investing in individual stocks is a very different—and far riskier—game than owning diversified index funds like the S&P 500 or Nasdaq-100. Individual stocks can, and often do, suffer far greater losses during market downturns.
During the 2022 bear market, the S&P 500 fell by about 23%. Many Magnificent Seven stocks dropped more than 70%. Even Nvidia declined by 64% that year.
Despite that decline, Nvidia still produced average annual gains of roughly 70% over the last five years. But that is the exception, not the rule. For every Nvidia, there are dozens of stocks that produced devastating losses.
Before adopting my investing system, many of you were earning annual returns of just 5% to 6%—typical for most retirement investors. Without a system designed to protect capital during severe bear markets, investors are forced into bonds and other low-return assets. Fear of losing money was holding back your results.
Since using my system, many of you have increased returns to nearly 20% per year in recent years. That’s outstanding. But it’s critical not to become overconfident or assume that investing is easy. The strong gains of 2023, 2024, and 2025 may look effortless—but they must always be viewed alongside difficult years like 2022, 2008, and 2001–2002.
Sum of losses:
3-Years 2000 to 2002 -46.5%
5-Years 2004 to 2008 -9.4%
Short-term results—whether one, three, or even five years—don’t tell us much. Market returns don’t truly stabilize until we examine 15- to 20-year periods.
For individual stocks, volatility is even more extreme. In 2025, only two of the Magnificent Seven stocks—Google and Nvidia—outperformed the S&P 500. The other five (Apple, Microsoft, Amazon, Tesla, and Meta) averaged gains of just 10.5%, compared to 17.9% for the S&P 500.
Fewer than 1% of the smartest, most experienced, and highest-paid professional investment managers can beat the S&P 500 over 20-year periods. Do you really believe you can consistently outperform them by picking individual stocks?
Any stock picker can get lucky over short timeframes. But sustaining superior results over decades requires extraordinary discipline, skill, and several hours of daily effort—something very few people possess.
I understand the appeal. Picking stocks and hitting a winner is exciting. The adrenaline rush is similar to gambling, where the odds are far worse than in the stock market.
Many people enjoy dabbling in stock picking. Compared to that, my investing approach may seem boring—even though it produces better long-term results.
If this sounds like you, consider yourself a stock-picking hobbyist. There’s nothing wrong with that—as long as you don’t put a large portion of your wealth at risk.
When I encounter hobbyists, I recommend limiting stock picking to less than 5% of your retirement nest egg—or using non-retirement “play money” that you can afford to lose. With only a small amount at risk, stock picking can’t do much damage.
Over 20-year periods, hobbyists should expect average returns of roughly 6% to 7%, accompanied by occasional big wins and painful losses—a roller-coaster ride. Some will even lose money in the long run if they bet on the wrong stocks.
Most hobbyists eventually give up. They tire of the effort and grow frustrated by losing picks.
The overconfidence and greed that follow excellent market years—like 2023 through 2025—can lead to painful mistakes. Resist the temptation to take on more risk in pursuit of a few “hot” stocks. Remember, when you own S&P 500 or Nasdaq index funds, you already own Nvidia, Google, and other high-flying companies.
Slow and steady wins the retirement investing race.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
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