Yield vs Growth

Good afternoon all,


I just wanted to see what preference people have around investing in high yield vs high growth products especially early on in your investing career. I am 26 and the theory of purchasing for growth makes perfect sense as I can let the power of compound work its magic, however there is also a part of me that wants to invest in high yield now to increase my cash flow early to give me more options for more growth products within the coming month/years which I would like to think will still be relatively early in my investing life.


I feel like this is very much a topic that can vary from person to person however I am very curious to see what people's thoughts are or even give some personal stories of what did or don't work for them.



Thanks,
Niche

 

Yield is also a factor of risk - risk of sustainability of returns, market risk, supply risk etc, related party transactions. Risk profiles vary - some will accept high risk investments but these may result in long vacancies, lack of demand, falling prices and the like.

 

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Grow Capital First

 

What Scott No Mates said.

Most people think yield = cash flow, but it equally represents "risk".

 

The melding of the two (Yield & Growth) I believe will provide the best outcome. Not easy in today's financial landscape, but still achievable if the homework has been done correctly.

 

Hang on to a growth asset, and eventually it will produce +'ve cash flow.

 

I think in principal growth trumps yield, mostly due to the tax free compounding effect. Especially true for shares where it is easier to sell small tranches as needed, perhaps less so for a big lumpy transaction like property.

But growth can also be less predictable. How do you know you have a growth asset on your hands? Especially long term growth that continues to exceed more steady income assets? What if he growth doesn’t materialise and you hold a loss making asset for a decade or more?

Some of the best investors seem capable of finding opportunitys that offer both upside in growth as well as good yields. Warren Buffet is the master of this of course, he continually makes deals with strong growing cash flows as well as underlying steady growth. Sorry my answer is probably not that helpful but I dont think it is as binary as yield vs growth.

 

Thank you all for the input so far.

I knew looking at numbers that it makes more sense to go for growth early but I think at the moment I am just struggling with the patience because as you all know the beauty of compound doesn't happen in the first few years it happens at the end. So at times it is hard to convince myself I have made the right choice as you can't always see the instant gains that you might with a high yielding asset.

Also, I would definitely describe myself as a passive and rookie investor especially when it comes to property however if I wanted to dip my toe in the active investment side of the world, does any have some recommendations on where to start i.e. what research I should do our what active methods should I focus on.

 

Agree, but I would say this is true at both ends of the spectrum. You can buy Argentine bonds with a 15% yields at the moment or you can angel invest in tech startups, they are at opposite ends of the spectrum of yield vs growth but both are high risk.

 

It wouldn't hurt to read through the "Other Asset Classes" threads that are on this site. Some invaluable information can be gained from some very knowledgeable posters.
Good luck.

 

Argentine bonds probably being higher risk as you have both the risk of the stability of the Argentine Government coupled with currency risk.


Start-ups are a risk category of their own - no track record, no sales, no reputation, run on a shoestring budget etc but are generally home grown.

 

Thanks TAJ,

I have started doing some research into other asset classes especially so that my money can be working harder for me than just sitting in an offset account until I am ready for my next purchase. I also think that it is probably smart to play around with shares rather than property if I want to look at active investing as I can limit my losses a lot more.

 

I recently heard a podcast about this exact thing. And depending on your starting age (and of course your strategy) this person used yield starting out over CG. This allowed him to borrow more and get into more property without leveraging. Of course this is all based on location and specifics. I personally chase CG but didn't start until my late 30's and had other sources of income I needed to offset IP's against. Again, depends on your own goals and strategies.

 

There's a key variable which is missing, you.

All depends on your own goals, financial situation, risk appetite and investment strategy.

If you had a low risk appetite, earning 45k a year with very modest goals then the whole yield/growth question may be addressed differently compared to if you were earning 200k , no debt, medium to higher risk tolerances, willing to add value and more aggressive goals.

 

That is my dilemma right now! I feel like if I had some higher yield assets, be property or shares, it would mean I have some potential improved cashflow to start focusing on those high growth assets as I still would like to think I would have plenty of years for compound growth to do its thing. However I do understand the points made that high yield assets tend to mean higher risk areas which makes me think I should lean toward growth

 

Perhaps but in many cases no ... eg. Land banking.

It's not so black & white. As a buyers agent perhaps a few qualifiers to such statements would value add for those still learning.

 

I would say I have a pretty secure/steady income which is one of the many things making my main focus resi property rather than commercial or shares, as well as the tax advantages you mentioned are nice and the leverage you get for property is very important in my eyes.

I do try and get out to open inspections as often as I can however when i do it just makes me want to be a property sooner which I know I don't have the deposit for yet haha

Everything that has been mentioned so far seems to be aligning with my thought process which is very comforting so thank you everyone

 

Don't forget, whatever you purchase will make future borrowing ability reduced ( often greatly reduced) which will then impact what opportunities area available to you in the future. There is only a certain amount of debt you can service before you will not be able to add assets.

So make each purchase strategically count as much as possible.