A distinction is commonly made in financial columns and elsewhere between portfolios designed to produce capital growth and those that yield income.
But this distinction is by no means as clear-cut as it seems. It can be dangerously misleading if applied to portfolio management in this unqualified form.
What is true is that
But income can be used to achieve growth. Value investors might well buy high-yielding shares in the view that these were more likely to produce good capital gains than highly-rated growth shares. The dividends could also be used to purchase more such shares while waiting for a recovery or rerating.
In certain circumstances, value investors might also buy bonds to produce capital gains. They might take the view that inflation was set to decline sharply, thus boosting the value of bonds. Or they might buy the bonds of distressed companies or countries in the hope of a substantial recovery.
Contrariwise, growth is necessary to maintain income. If you tried to 'guarantee' your income after retirement by switching your entire portfolio into bonds, you would be risking a severe drop in your standard of living. Your income would be fixed, but inflation could go on rising for the rest of your life - and that might amount to twenty years or more.
The way to protect your income is to ensure your portfolio keeps growing fast enough to compensate for inflation. To achieve this, you might convert between one-quarter and one-third of the portfolio into bonds, but keep the rest in shares.
In theory, you could even ignore investing for income altogether. Instead, you could keep on investing entirely in shares for growth, and raise income as and when required by selling your holdings piecemeal.
In practice, this would be rash. You would once again be putting your standard of living at risk. In this case, the threat is that the value of your shares might fall in a bear market. You might then have to cut your income drastically to preserve the value of your remaining capital.
So instead of making black-and-white distinctions between growth and income, remember:
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