What is an Income-Generation Investment Strategy?
What is a Total Return Investment Strategy?
The total return strategy takes a different approach to an investment plan. Instead of focusing on developing a portfolio specifically around cash returns, a total return portfolio is optimized for generating growth by considering all forms of wealth generation, namely, equity growth.[1]
While an income strategy provides cash returns that can be reinvested or used to spend, a total return strategy includes equity growth as well. So, using common sense, a total return strategy may be utilized for someone who is looking for a diversified return strategy approach and wants the benefits of equity growth with some of the benefits of compounding interest or dividends.
What’s the Difference in Practice?
Let’s say you have the choice between two investments. One investment has a 2% rate of growth and a 4% dividend. The other investment has a 2% dividend and an expected equity return of 5%. Those focusing on income would likely choose the first investment because they will get a greater amount of cash from their investment without having to withdraw any of the principle from that investment. Those thinking about total return would choose the second investment because it has a higher expected rate of return overall. What the recipient wants to do with that return is often the deciding factor in which strategy they’d prefer to use.
