When Dave Ramsey suggests investors use growth and income funds, what does he mean? Wisely, he leaves the details to advisers but your faithful mutual fund guide will provide some insight and cautions for investing in the growth and income objective.
Defining Growth & Income
The simple definition of the growth and income is an investing objective that consists of investing in both growth and income securities. This is still a deceivingly broad definition because growth is a broad stock investment objective and income can refer to either stocks or bonds (or both). One could even say that a diversified portfolio of mutual funds, consisting of various stock and bond funds, is considered to have a growth and income objective.
I like Dave Ramsey and I must admit here that he is one of the reasons I began investing in mutual funds, which is also what eventually led to my starting my own investment advisory firm and becoming your humble mutual fund guide. Dave is also good at keeping things extremely simple. Notice I emphasize extremely. This is for good reason, dear reader and mutual fund investor...
Caution and Tips for Growth & Income
Many growth and income funds conveniently include the phrase "growth & income" in their formal fund name. This makes investing easier, right? Perhaps easier, but not better. For example, one of the best-performing growth and income funds in recent years is Calamos Growth & Income (CGIIX). This fund does not consist of stocks but rather convertible bonds; there is a large difference. Another example is Vanguard Growth & Income (VQNPX), which only invests in stocks (growth stocks and value stocks).
I won't make the mistake of telling you to invest in growth and income funds as a mutual fund type but I will suggest you learn how to build a portfolio of mutual funds and create an investment objective that suits your needs best.