An Introduction to Financial PlanningAn Introduction to Financial Planning

When you're looking to start investing, one of the first things you'll need to discuss with an investment manager is what type of portfolio is going to best fit your needs. There are several main types, with most clients ending up choosing between either an income portfolio or a growth portfolio.

Put simply, an income portfolio makes investments with the intention of creating regular income, often in the form of dividends. In contrast, a growth portfolio is designed to achieve more long-term gains — capital appreciation is the goal, so you will receive fewer or no dividend payments.

Income portfolios often seem more attractive at first since they provide rewards much faster, and they do offer plenty of advantages. However, new investors should also strongly consider the benefits offered by growth portfolios, so here are just four of the most important.

1. Long-Term Value

Most people are attracted to growth portfolios because they offer greater capital appreciation than income portfolios. Though you may not receive much of a return for several years, growth funds are all about investing in companies that should show a high growth trajectory over time, with any rewards reinvested back into the portfolio. The value of your growth portfolio should compound over time, so you have a good chance of ending up with a portfolio that is worth far more than you put into it. You do have to wait longer, but the rewards tend to be higher.

2. Easy Liquidity

Though growth funds do aim for long-term value, they also tend to offer high liquidity. This is because most growth funds focus on investing in equities, which are usually in higher demand and supply than other assets. This means you always have the option to move back to large cash positions if it ever makes sense to do so.

3. Less Tracking

Even when using an investment manager, clients often prefer investment portfolios that don't require extensive or frequent monitoring. Since growth funds invest with long-term returns in mind and are relatively unaffected by minor dips in the market, they often appeal to investors who want to avoid the need for vigilant tracking or regular adjustments.

4. Strong Diversification

Diversification is always important since it helps protect your investments from market fluctuations and doesn't place all your eggs in one basket. Growth fund portfolios generally achieve strong diversification since they can opt for a sensible variety of investment opportunities. If you are looking for diversified equity exposure, growth portfolios should appeal.

Contact an investment management service for more info.