INCOME INVESTING

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.