Growth vs. income investing: Which strategy is right for you?

Your investment strategy isn't a race to the finish line. It's a matter of timing. While it may feel safer to stay in your lane, there are often other ways to make your money work for you.

And when you’re choosing between growth and income investing, you're likely really answering a bigger question: What is this money for? Not just today, but for the life you're building.

If retirement is decades away, you may want to stay in cruise control and focus on slowly growing your wealth. If you're headed toward retirement, you may want to shift gears and prioritize investments that generate steady income. Growth and income are two different paths to building wealth, and as your goals change, you can shift between them.

Growth investing is about patience. Instead of paying you along the way, it puts your money to work now with the goal that it's worth more later. In theory, you buy assets you expect to appreciate, then sell them down the road for more than you paid, trading income today for the potential of growth.

Here's how it plays out in practice. Growth-oriented companies often reinvest their profits back into the business rather than paying dividends to shareholders. As those investments help the company grow, its stock price ideally climbs, which means your shares are worth more, too.

This is where compounding starts to do the heavy lifting. Leave your gains in your portfolio instead of cashing them out, and those gains can go on to generate gains of their own. Give that enough time, and the effect on your portfolio can be significant.

Common growth investments include:

• Growth stocks (technology, consumer discretionary items like high-end apparel, entertainment and automobiles)
• Exchange-traded funds (ETFs)
• Index funds
• Small-cap and mid-cap stocks
• Real estate purchased primarily for appreciation

The main risk is that growth-oriented investments can be more volatile and may lose value in the short term.

Income investing is about cash flow. Your portfolio generates income throughout the year through dividends from stocks, interest from bonds, and other investments. Instead of waiting for value to build over time, you're collecting along the way. The goal is predictable income, something you can count on now or lean on to support your spending in retirement.

One thing worth keeping in mind. Income investing is broader than dividend investing. Dividend-paying stocks are one way to generate income, but bonds, REITs, CDs and money market accounts can do it, too. Dividends might be part of your income strategy. They don't have to be the whole thing.

Common income investments include:

• Dividend-paying stocks
• Bonds
• Bond funds
• Real estate investment trusts (REITs)
• Certificates of deposit (CDs)
• Money market accounts

The main risk is that income-producing investments can grow more slowly over time than growth-oriented ones.

One of the biggest differences between growth and income investing comes down to timing. Growth investors are building value they'll cash in down the road. Income investors are collecting cash flow along the way. Everything else, from risk level to tax treatment, follows from that distinction.

Here's how they compare:

Neither strategy is inherently better. If both appeal to you, you don't have to choose just one. Combining growth and income investments lets you benefit from long-term appreciation while generating regular cash flow, and it's a common approach many investors take. Just keep in mind that each type of investment may come with different tax implications.

Often growth investing lets you defer taxes until you sell, while income investing generally taxes you every year, whether you spend that income or not.

Here’s what else you need to know about how each approach is taxed.

One of the biggest tax advantages of growth investing is tax deferral. Generally, you won’t owe taxes on investments that simply increase in value. Instead, taxes will generally only be triggered when you sell all or part of the investment and realize a gain.

If you hold your investment for longer than one year before selling it, any profits generally qualify for the more favorable long-term capital gains rates. Investments that you hold for one year or less are typically taxed as short-term capital gains at your ordinary income tax rate. This ability to control when gains are realized can give you more flexibility in managing your tax bill.

For current federal long-term capital gains tax rates are:

The specific tax rate you’ll owe on either short-term or long-term capital gains will depend on your taxable income and filing status.

Income investments may generate taxable income every year, whether you spend that money or not, so you'll want to factor those taxes into your overall investment strategy. Qualified dividends generally receive the same favorable tax treatment as long-term capital gains. Non-qualified dividends are typically taxed as ordinary income, which can be substantially higher (up to 37% under federal brackets).

Interest from most taxable bonds is also often taxable as ordinary income unless it comes from certain municipal bonds or tax-advantaged accounts. And investments can create an annual tax bill even if you reinvest all dividends and never spend the money.

In addition to your investment decisions, you also can choose where you hold those investments. Choosing the right type of account can improve your portfolio's tax efficiency. This can help you keep more of what your investments earn and give you more freedom in how you use your money.

Depending on your goals, you might consider:

• Holding growth investments in taxable accounts, where capital gains taxes can be deferred until you sell.
• Holding dividend-paying investments in tax-advantaged accounts, such as traditional IRAs, where annual taxable distributions may have less immediate impact.
• Favoring qualified dividends when possible, since they're generally taxed at the lower long-term capital gains rates rather than ordinary income tax rates.

Because Roth IRAs allow investments to grow and dividends to be reinvested without current taxation, they can be especially attractive if you’re a long-term investor. Qualified withdrawals in retirement are generally tax-free, making Roth accounts a powerful tool for both growth and income investors.

Your age and retirement strategy goals may affect whether income investing or growth investing makes the most sense for you.

With decades of wiggle room before retirement, you can accept greater market volatility in exchange for higher growth potential. If you’re a younger investor, you may emphasize growth-oriented investments because you have time to recover from market downturns and benefit from compounding.

These years often represent a transition period for investing for retirement income. Retirement becomes more visible, but growth remains a priority. You can decide on more diversification through bonds and income-producing assets while maintaining meaningful stock exposure. This stage often focuses on balancing growth potential with risk management.

As retirement approaches or begins, portfolio priorities often shift. This stage isn't about squeezing out every last percentage point of growth. It's about having enough, reliably, so you can stop worrying about the market and start focusing on what that money was for in the first place: time with family, generosity, and the freedom to personally and financially enjoy this time. Income-producing investments can help support daily spending needs while reducing reliance on selling investments during market downturns.

Your choice for growth and income investments depends on more than just age. Other factors that can influence this decision include your:

• Risk tolerance
• Retirement timeline and overall time horizon
• Existing income sources, such as pension income and Social Security benefits
• Tax bracket
• Expected health care expenses
• Legacy goals

That's a lot to weigh on your own, and you don't have to. A financial advisor can help you look at these factors together and figure out what's right for you.

For many investors, it may be advantageous to combine growth and income strategies. A blended portfolio lets you pursue long-term appreciation while also generating regular cash flow, so you're not stuck choosing one path. For example, even in retirement, you may opt to keep part of your portfolio in growth investments to help it keep pace with inflation, while relying more heavily on income-producing investments for spending needs. Working with a financial advisor can help you balance decisions like these.

A blended portfolio might include:

• Broad-market stock index funds
• Growth-oriented ETFs
• Dividend-focused ETFs
• Individual dividend stocks
• Bond funds or bond ladders

Some investments sit naturally between the two categories. Dividend-growth stocks, for example, provide current income while also offering long-term appreciation potential. Growth and income funds typically combine stocks that offer appreciation potential with investments that generate regular income.

Another benefit is rebalancing. You can decide whether you want to gradually shift from a growth-heavy portfolio to a more income-oriented allocation over time without making dramatic changes all at once. This way, you’ll know that one portion of your financial portfolio is generating income while another continues pursuing long-term growth. A portfolio that includes both income-generating and appreciating assets also may make it easier to stay disciplined during market volatility.

The dilemma between growth vs. income investing isn't about seeing which one gets to the financial finish line faster. It's about finding the right strategy for your current stage of life and financial goals.

Growth investing can help build wealth over long periods through capital appreciation and compounding. Income investing can provide stability and cash flow when you need your portfolio to support your lifestyle.

The right approach for you will evolve as your goals, timeline and circumstances change. A Thrivent financial advisor can help you develop a strategy that takes your time horizon, risk tolerance, tax situation and income needs all into account, now and as things change.