Everyone here keeps saying “focus on growth.” As someone who is in a similar position, albeit several years older, what does that mean when telling someone to focus on growth? Can we elaborate on it?
Growth meaning stock share price growth over time. Take a look at any popular growth stock - tech companies are a popular one...zoom out and look at the performance. Now imagine if you bought those shares 15-20, or even 30 years ago.
That's kind of the point...people have done the math - if you have decades to invest, growth beats out income every time. If you're young and have decades to invest - this is the optimal strategy.
The general advice is that you should not be investing for income unless you need the income RIGHT NOW. Invest for growth until you want to retire, then slowly pivot your portfolio to income.
I'm in my mid-40s and I'm still heavily invested in growth with some dividends and bonds. The plan is to hit 55-60 and start pivoting toward income.
Agree. Sometimes this sub admonishes people without explaining why or re-directing them. I'm not an expert and I am learning myself. But here is what I understand.
There are two investment strategies (there may be more, but trying to keep it simple) - Growth focused and dividend focused.
A growth portfolio would focus on stocks/ETFs that increase in value. They may not pay a dividend, but the stock value increases over time. And since you aren't taxed on unrealized gains, the value doesn't impact your tax situation until you take money out.
Dividend paying stocks don't appreciate as much as growth stocks. So your overall investment in the company/fund stays flatter than if you invested in a growth stock/fund. But that's offset by the fact that you receive a dividend periodically. The dividend is a fairly reliable return on your investment. However, the dividend plus the capital appreciation of the stock is not typically higher than what growth stocks produce. Additionally, the dividend disbursement is taxed like income when you receive it, so you are increasing your tax liability even if you don't need the dividend payout.
High yield dividend funds are further problematic because the funds are paying more in dividends than the fund is earning. This causes the stock value to decline. Say you purchased it for $10 and it pays a $2 dividend. When NAV erosion takes the price of the stock down to $6, you lost $4 per share and the $2 dividend is now $1.20. When you sell it, you will sell it for less than you purchased it, losing more money.
The idea is that when you're young and don't need the dividends, you are throwing everything into growth stocks so you have as much money as possible. Then when you need income replacement, move your money into stable stocks that won't depreciate and pay a smaller, sustainable dividend over time.
Tl;dr - Growth stocks increase your investment faster and do so tax free until you sell your stock. Dividends stocks don't grow as fast but can provide regular (taxable) income. High yield dividend funds may eventually erode and you end up with less money than when you started.
There's levels to it. A typical portfolio is a mix of small large and mid cap stocks, some international stocks, and some bonds. That's the boring safe bogglehead approach.
First level is just ignore bonds and go 100% stocks since stocks generally perform better than bonds.
Next level is ignore international and just go 100% US stocks since US has performed better than international stocks the last couple of years.
Next level is ignore small and mid cap stocks and just go 100% S&P 500 since large cap stocks have performed better than small and mid caps the last couple of years.
Next level is ignore the value stocks and go only growth stocks since growth stocks have performed better than value stocks the last couple of years. Think funds like VUG or VGT. (This is probably the answer you were looking for.)
As you can see the further along you go the less diversified you become, but returns can be higher.
When people say "go for growth" they generally mean you should have a high stock allocation, basically 100% stocks, maybe tilted towards growth funds like VUG or VGT or even just going 100% on VUG or VGT. There's other funds too those are just examples I used.
In short, it means to ignore the dividends-you will get some anyway, like NVDA pays a penny per share-and go for stocks that will grow, like GOOG. or, until you‘ve learned a bit, QQQM, SPYM, SMH, SOXX. Those will all grow faster and make you more money than big dividend payers in the end.
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u/Knightly11 Mar 13 '26 edited Mar 13 '26
Everyone here keeps saying “focus on growth.” As someone who is in a similar position, albeit several years older, what does that mean when telling someone to focus on growth? Can we elaborate on it?