Learning Objectives

After completing this chapter, you will be able to:

• Understand what an investing style is.
• Learn the characteristics of dividend investing.
• Understand growth investing.
• Learn the principles of value investing.
• Understand ETF investing.
• Learn about income investing.
• Identify which investing style may best suit your financial goals and risk tolerance.

Introduction

There is no single "best" way to invest. Every investor has different financial goals, time horizons, and risk tolerance. Some investors focus on building long-term wealth, while others prefer earning regular income or investing in diversified funds. Understanding the different investing styles can help you develop a strategy that suits your personal financial objectives.

What is an Investing Style?

An investing style is the approach an investor uses when selecting investments and managing a portfolio.

Your investing style is influenced by factors such as:

• Financial goals.
• Risk tolerance.
• Investment time horizon.
• Income needs.
• Personal preferences.

Many successful investors combine more than one investing style to create a balanced portfolio.

Dividend Investing

Dividend investing focuses on buying shares of companies that regularly distribute a portion of their profits to shareholders as dividends.

Many dividend-paying companies are well-established businesses with stable earnings.

Why Investors Choose Dividend Investing

Dividend investing may help investors:

• Generate regular income.
• Build long-term wealth through reinvestment.
• Receive potential franked dividends (Australia).
• Invest in established companies.

Dividend investing is often popular among retirees and long-term investors seeking income.

Example

Examples of Australian companies known for paying dividends include:

• Commonwealth Bank (CBA)
• Telstra (TLS)
• Wesfarmers (WES)

Past dividend payments do not guarantee future dividends.

Growth Investing

Growth investing focuses on companies that are expected to increase their earnings and business value over time.

Growth companies often reinvest profits into expanding their operations instead of paying large dividends.

Why Investors Choose Growth Investing

Growth investing may offer:

• Higher long-term capital growth potential.
• Exposure to innovative businesses.
• Opportunities in expanding industries.

Growth investing usually involves higher volatility than dividend investing.

Example

Growth companies are commonly found in sectors such as:

• Technology
• Healthcare
• Artificial Intelligence
• Renewable Energy

Investors generally focus on future business growth rather than current dividend income.

Value Investing

Value investing involves identifying companies that appear to be trading below their estimated intrinsic value.

Value investors believe that the market may sometimes undervalue quality businesses.

The goal is to purchase shares at attractive prices and hold them while the market recognises their value.

Why Investors Choose Value Investing

Value investing may help investors:

• Buy quality businesses at lower prices.
• Focus on long-term fundamentals.
• Build wealth through patient investing.

Value investing often requires research and a long-term perspective.

Example

A profitable company with stable earnings may experience a temporary decline in its share price because of short-term market concerns.

A value investor may view this as an opportunity to investigate whether the company is trading below its intrinsic value.

ETF Investing

Exchange Traded Funds (ETFs) allow investors to purchase a diversified collection of investments through a single security traded on the stock exchange.

ETFs can track:

• Share market indices.
• Industry sectors.
• International markets.
• Bonds.
• Commodities.

Why Investors Choose ETFs

ETF investing offers several advantages:

• Instant diversification.
• Lower management costs compared to many actively managed funds.
• Easy access to different markets.
• Simple way to build a diversified portfolio.

ETFs are popular among beginner investors because they provide broad market exposure with a single investment.

Example

Popular Australian ETFs include:

• Vanguard Australian Shares ETF (VAS)
• iShares Core S&P/ASX 200 ETF (IOZ)

These ETFs provide exposure to many companies through one investment.

Income Investing

Income investing focuses on generating regular cash flow from investments rather than primarily seeking capital growth.

Income can come from:

• Dividends.
• Bond interest.
• REIT distributions.
• Fixed-income investments.

Income investing is often used by investors who require regular payments to support their financial needs.

Why Investors Choose Income Investing

Income investing may help investors:

• Generate regular cash flow.
• Supplement retirement income.
• Reduce reliance on selling investments.
• Build a more stable investment portfolio.

The level of income can vary depending on market conditions and the performance of the underlying investments.

Comparing Different Investing Styles

Each investing style has its own advantages, risks, and suitable investor profiles.

Can You Combine Different Investing Styles?

Yes.

Many investors combine several investing styles within one portfolio.

For example, a balanced portfolio may include:

• Dividend-paying Australian shares.
• Growth companies.
• Broad market ETFs.
• Income-producing REITs.
• Bonds or other defensive assets.

Combining different approaches may help improve diversification while supporting multiple financial goals.

Reading a Real ASX Example

Consider an investor with the following portfolio:

• Commonwealth Bank (CBA) for dividend income.
• CSL Limited (CSL) for long-term growth.
• Vanguard Australian Shares ETF (VAS) for diversification.
• Australian REITs for additional income.

This portfolio combines multiple investing styles to create a diversified investment strategy rather than relying on a single approach.

How to Choose Your Investing Style

Before choosing an investing style, ask yourself:

• What are my financial goals?
• Am I investing for growth or income?
• How much investment risk am I comfortable with?
• How long do I plan to stay invested?
• Do I prefer individual shares or diversified funds?

There is no universally correct investing style. The most suitable approach depends on your personal circumstances and financial objectives.

Key Takeaways

• An investing style is the approach used to select and manage investments.
• Dividend investing focuses on generating regular dividend income.
• Growth investing aims for long-term capital appreciation.
• Value investing seeks quality companies trading below their estimated value.
• ETF investing provides diversification through a single investment.
• Income investing focuses on generating regular cash flow.
• Many investors combine multiple investing styles to build a diversified portfolio.