Growth And Income Fund

What is a 'Growth And Income Fund'

A growth and income fund is a mutual fund or exchange-traded fund ETF that has a dual strategy of capital appreciation (growth) and current income generation through dividends or interest payments. A growth and income fund may invest only in equities or in a combination of stocks, bonds, real estate investment trusts (REIT) and other securities.

BREAKING DOWN 'Growth And Income Fund'

Growth and income funds are popular among investors with moderate (but not excessive) appetites for risk – the ever-popular "balanced investor." Although returns will typically lag those of pure growth funds, sometimes high-yielding stocks become favored in the stock markets, driving growth and income funds to superior performance. The stability of these funds appears most attractive when the broad economy looks to be weakening.

Growth and Time Horizons

Investors in growth and income portfolios favor stability without forsaking returns that outpace inflation. Depending on risk tolerance, a balanced investment objective is adopted by individuals who either shun volatility completely or scale back growth objectives as retirement approaches. When planning investment strategies, the age of an investor is vital in determining asset allocation and risk tolerance. A 25-year-old investor initially entering the workforce holds a longer time horizon than a 70-year-old retiree. Investment advisers suggest that regardless of age, exposure to equities is a necessary for any portfolio. However, the percentage of equity exposure shifts as time horizons shorten. A rule of thumb among financial professionals holds that growth allocations decrease as an investor ages. If individuals subtract their ages from 100, the remainder represents the percentage of stocks they should hold, with the balance in less volatile bonds and cash.

Investors can select from numerous funds that meet balanced objectives. Portfolios such as the John Hancock Balanced Fund ("SVBAX") exemplify low volatility with an average annual return of 6.51% for 10 years through March 31, 2016, a measure only 50 basis points (bps) below the S&P 500 Index over the same time frame.

Income and Retirement Needs

The investment objective of a retiree involves income needs, a scenario in which earnings are replaced by personal savings and dividend and interest income. Financial advisers recommend that retirees replace 75% of working wages with income-producing securities such as bonds and large-cap dividend-paying equities. A balanced fund holds a considerable allocation of corporate and government bonds offering semi-annual interest payments while seeking to preserve capital. The less-volatile nature of U.S. Treasurys and investment grade bonds couple with the growth potential of stocks, providing income and a potential rate of appreciation to combat rising prices of goods and services ensuring that an individual does not outlive his or her retirement savings. Growth and income funds fulfill both objectives within a single security.

With interest rates historically low, the Dodge and Cox Balanced Fund ("DODBX") chalked up an annual average five-year return of 9.58% and a trailing 12-month yield of 2.30% as of June 6, 2016, a measure that exceeds the 10-year Treasury by 57 bps. Thus, growth and income funds fulfill dual investment objectives under one roof.

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