How income focused investing differs from a growth focus
Investing for income differs to seeking growth. But in an environment of inflation, Chris Paton, chief investment officer of La Trobe Financial, explains why income-oriented investments can form part of a diversified portfolio.
Broadly speaking, investors fall into one of two camps - those whose portfolios are weighted towards capital growth, and those with income as their primary goal.
Growth investors typically focus on assets such as shares with the potential for long-term capital growth, even though short-term returns can be negative.
Income investors, on the other hand, look for assets that deliver a reliable and steady flow of income through returns such as interest on fixed income investments.
In this way, income investors might be retirees looking to replicate their old pay cheque, with regular income at set intervals throughout the year. But the game changes in inflationary environments, and investors need to be ready.
It's about finding the right blend
For both types of investors - income- and growth-focused, it makes sense to have a diversified portfolio.
So, it's not a question of investing only in one type of asset, but more a case of finding the blend that meets your needs.
Income investing, with its emphasis on stability and predictability, is particularly attractive to retirees, and those who rely on investments for money to live on.
However, income investments can play an important role in a diversified portfolio because they tend to be less volatile and provide more immediate financial benefits than growth assets.
Income investing can be lower risk
Income investing has another point of appeal.
Investments that generate regular, predictable income can be less risky than growth assets, and if you're not specifically seeking income, you may be able to reinvest the income for a compounding rate of return. That's a double benefit - as it can be lower risk, while providing a real rate of return by outpacing inflation.
This can especially be the case for private credit funds managed by mature, financially stable asset managers that combine scale with a proven track record across economic cycles*.
This scale and experience matters.
The sector's regulator, ASIC, notes that Australia's private credit market has "grown in recent years and continues to grow strongly."
The size of Australia's private credit market is currently estimated at around $200 billion.
This growth has attracted new, less experienced entrants to the private credit market.
That makes it essential for investors to look under the hood of any private credit investment to understand who is behind the fund, how long they have been in business, and their breadth of experience.
La Trobe Financial has been a leader in Australian credit for over 70 years, having navigated the full spectrum of economic conditions. And it shows. The flagship 12 Month Investment Account has been recognised as Australia's "Best Credit Fund - Mortgages" by Money magazine for 17 consecutive years.
Inflation could drive more Australians to income investing
During periods of economic change, investors have tended to focus on income they can depend on.
Right now, inflation remains persistently high in Australia and globally. Geopolitical events are rattling share markets, and the Reserve Bank of Australia (RBA) has delivered rate hikes in quick succession.
Under these conditions, income investing can be very attractive for all investors by generating real returns which exceed the rate of inflation, with lower risk profiles.
Fortunately for investors, La Trobe Financial's popular 12 Month Investment Account is backed by variable rate mortgages. As market rates move higher, the income generated can be inflation-responsive.
This gives La Trobe Financial's investors income and a variable regular cash flow, while helping to maintain purchasing power.
The bottom line - it pays to invest in experience
Ultimately, the allocation between income-focused and growth-focused investing depends on your financial goals, time horizon, and risk tolerance.
Nonetheless, in today's environment where inflation has re-emerged as a key risk, certainty of income is particularly attractive.
Private credit funds and the La Trobe Financial 12 Month Investment Account can provide a positive contribution to a diversified portfolio.
Just be sure to check the track record of any private credit fund you're thinking of investing in. In uncertain times, it pays to invest in experience.
If you're seeking a durable income solution, contact the La Trobe Financial team on 1800 818 818 or visit latrobefinancial.com.au and find out more.
La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence No. 222213 Australian Financial Services Licence No. 222213 is the responsible entity of the La Trobe Australian Credit Fund ARSN 088 178 321. It is important that you consider the Product Disclosure Statement (PDS) before deciding whether to invest or continue to invest in any of the funds. The PDSs and Target Market Determinations are available on La Trobe Financial's website.
*Past Performance is not a reliable indicator of future performance
Any Financial product advice is general only and has been prepared without considering your objectives, financial situation or needs. You should, before investing or continuing to invest in the La Trobe Australian Credit Fund, consider the appropriateness of the advice having regard to your objectives, financial situation or needs and consider the PDS for the fund.
When considering whether to invest or continue investing in the La Trobe Australian Credit Fund, you should be aware that (1) an investment in the fund is not a term deposit, and your investment is not covered by the Australian Government's deposit guarantee scheme. Investing in the fund has a higher level of risk compared to investing in a term deposit issued by a bank and (2) there are other risks associated with an investment in the fund. The key risks of investing in the fund are explained in section 9 of the PDS, available on our website.
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