Is it Time to review your Investments?

Would you like to increase your capital, improve your income or both? Your response will determine the kind of investments you choose and, furthermore, you have to be aware about the idea of ‘total return’. This is actually the way of measuring of performance - the specific rate of return of an investment or perhaps a pool of investments for a given period of time. Total return consists of interest, any capital gains made and dividend distribution realised over the given time frame.

Income and capital appreciation

Total return accounts for two categories of return: income and capital appreciation. Income consists of interest paid by fixed-income investments whilst combined with distributions or dividend payments. Capital appreciation or growth signifies the alteration in the market value of an asset. Total return looks to blend income with capital growth to get the best overall return.

Whether you choose an income or a growth fund will typically depend on your circumstances and objectives - in other words, your investment time frame, your attitude towards investment risk and what you need the investment to provide for you.

A regular stream of income

If you need a regular stream of income, focusing your portfolio on assets that will help you achieve this, such as cash and bonds, will provide a fixed income. If you have a longer investment time period or you do not need an immediate income, you could consider a larger allocation to growth-focused investments.

It is possible to buy an income fund and a growth fund to capitalise on the advantages that come with each type of investment strategy. Some investment service or fund management companies offer income and growth funds, that provide a bit of each style within the same fund; nevertheless, there's generally less choice available.

Whatever your preference, if you hold a variety of investments, both growth and income, you should be better prepared for future economic ups and downs. As your financial situation changes over time, you may need to make the necessary adjustments to your investment portfolio and switch from growth assets to income.

Investment timeline

Broadly speaking, younger people are saving for the long term and don’t necessarily need their investments to produce a current income but will be looking to guard against inflation. Under these circumstances growth funds may be more appropriate.

For middle-aged investors, funds that are biased towards growth are still usually the right option, however the amount invested will probably be greater due to higher income and savings acquired over past years. Having a secure capital base behind them, middle-aged investors might also think about placing part of their personal savings into some higher risk investments, for example more specialised pooled funds.
When investors begin to approach retirement, their priorities change. Having accumulated a capital sum, depending on their circumstances their investment adviser should start transferring towards resources that offer an income after they stop work. Although share-based investment funds have a tendency to do well in the long run, they might swing sharply in value over short term. So people close to retirement ought to think about changing into much more defensive, income funds at this stage.