What Is a Growth and Income Fund?
Let me explain to you what a growth and income fund really is—it's a category of mutual fund or exchange-traded fund (ETF) that follows a dual approach, targeting both capital appreciation, which means growth, and current income from dividends or interest. You might find these funds investing solely in stocks or mixing in bonds, real estate investment trusts (REITs), and other securities.
Think of it as a blend fund that puts money into both growth and value stocks, giving you that balanced strategy.
Key Takeaways
Here's what you need to know: a growth and income fund is essentially a mutual fund or ETF strategy designed to deliver total returns, including capital gains and current income. The main goal is building a diversified portfolio that leverages the growth segment for capital gains potential and the value segment for dividend income and stability. Since these funds vary widely, you should research each one's strategy and use a style box to categorize them more easily.
Understanding Growth and Income Funds
If you're a balanced investor with a moderate appetite for risk—not too aggressive—these growth and income funds are popular choices. While their returns usually trail pure growth funds, there are times when high-yielding stocks gain favor in the markets, pushing these funds to outperform. They look especially stable when the overall economy seems to be slowing down.
Growth and Time Horizons
As an investor in growth and income portfolios, you're likely prioritizing stability while still aiming for returns that beat inflation. Based on your risk tolerance, you might adopt a balanced objective if you avoid volatility entirely or if you're nearing retirement and dialing back on growth. Remember, your age plays a crucial role in asset allocation and risk tolerance when planning investments.
A young investor, say 25 years old and just starting out, has a longer time horizon than a 70-year-old retiree. Advisers always recommend some equity exposure no matter your age, but as your time horizon shortens, the equity percentage should drop. A common rule is to subtract your age from 100—that gives you the percentage to hold in stocks, with the rest in less volatile bonds and cash.
You have plenty of funds to choose from that fit balanced goals. Take the John Hancock Balanced Fund (SVBAX), for instance—it shows low volatility with a 10-year average annual return of 7.84% as of June 30, 2022, though that's below the S&P 500's 12.96% over the same period.
Income and Retirement Needs
For retirees, the focus shifts to income, where you replace earnings with savings, dividends, and interest. Advisers suggest aiming to cover 75% of your working wages with income from securities like bonds and dividend-paying large-cap stocks.
A balanced fund typically includes a solid allocation to corporate and government bonds for semi-annual interest, all while preserving capital. The lower volatility of U.S. Treasury and investment-grade bonds, combined with stock growth potential, delivers income and appreciation to fight inflation, ensuring you don't outlive your savings. Growth and income funds handle both needs in one package.
Examples of Growth and Income Funds
Consider the Dodge and Cox Balanced Fund (DODBX)—it posted a 10-year average annual return of 9.91% as of June 30, 2022, beating its benchmark index. But its yield was below the 10-year Treasury's around 2.832% as of August 4, 2022. So, these funds can meet dual objectives effectively, especially in low-interest-rate environments.
Even though they share the growth and income goal, each fund has its own bias. The Dodge & Cox fund, for example, favors value stocks that seem undervalued. Others might emphasize growth or income more, or lean heavier on bonds. And while they're generally low-volatility, some are riskier—like the Vanguard Growth and Income Fund Investor Shares (VQNPX), which highlights volatility risk from full stock market exposure.
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