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Differences in Investing for Income vs Capital Gains

by Sally Kelsies

There are two main reasons why people invest in assets: to generate income and to achieve capital gains. Both are valid reasons, but it’s important to understand the difference between the two so you can make the best decision for your individual situation. In this blog post, we will discuss the pros and cons of each type of investment, so you can make an informed decision about which one is right for you!

Understanding Your Investment Goals

If you’re looking to generate income from your investments, there are a few things you should consider. First and foremost, you’ll want to choose investments that offer high yields. This could include dividend stocks, real estate investment trusts (REITs), or high-yield bonds. It’s also important to remember that investments that offer high yields typically come with higher risks. So, if you’re investing for income, you should be prepared to accept some level of risk.

On the other hand, if your goal is to achieve capital gains, you’ll want to focus on growth investments. These could include stocks in companies with strong fundamentals and earning potential, or assets such as art or collectibles that are expected to appreciate over time. Keep in mind that growth investments can be riskier than income investments, so you’ll need to have a higher tolerance for risk.

Advantages of Income Investing

Passive income can provide a consistent stream of revenue that can help to pay the bills and free up your time. It can also act as a buffer against unexpected expenses.

Income investing can also offer greater stability than capital gains investing. For example, if you invest in a rental property, the rent payments you receive are likely to be relatively stable, even if the value of your property fluctuates. This stability can be appealing, especially if you’re relying on investment income to cover your living expenses.

Disadvantages of Income Investing

On the downside, income investments tend to have lower returns than capital gains investments. They also typically require more work to maintain (for example, being a landlord) and there is always the risk that something could go wrong (tenants could damage your property, for example).

Additionally, income investing can tie up a lot of your money in one investment. This can be a good thing if the investment is doing well, but it can also make it difficult to sell the investment quickly if you need the money for something else.

Advantages of Capital Gains Investing

The biggest advantage of capital gains investing is that it has the potential to generate much higher returns than income investing. For example, if you invest in a stock that doubles in value, you’ve made a 100% return on your investment. That’s much higher than what you could typically expect from an income investment.

Another advantage of capital gains investing is that it’s often easier to sell your investments quickly if you need the money. For example, if you invest in a stock, you can usually sell it relatively quickly and without incurring any significant costs. This is not always the case with income investments, which can take longer to sell and may incur selling costs (such as real estate commissions).

Disadvantages of Capital Gains Investing

Of course, the higher potential returns of capital gains investing come with higher risks. For example, if the stock you’ve invested in goes down in value, you could lose money. And, even if the stock does well, there’s no guarantee that it will continue to do well in the future.

Additionally, capital gains investing can be more expensive than income investing. For example, if you’re buying and selling stocks, you’ll have to pay transaction fees. And, if you’re investing in something like real estate, you’ll incur costs such as appraisal fees and closing costs.

Making the Right Choice for You

There is no right or wrong answer when it comes to investing for income vs capital gains. It all depends on your individual goals and risk tolerance. If you’re looking for stability and income, investing for income may be the best option for you. However, if you’re willing to take on more risk in pursuit of higher returns, investing for capital gains may be a better choice. Ultimately, the best decision is the one that aligns with your investment goals and risk tolerance.

Remember that sound investing principles apply regardless of whether you’re investing for income or capital gains. Diversification is important, no matter what type of investment you’re pursuing. And, it’s always a good idea to have a mix of different types of investments in your portfolio. This can help to reduce risk and maximize returns.

Reading books about investing will also give you a better understanding of the different types of investments available and how to choose the ones that are right for you.

So, what’s the best way to invest for income vs capital gains?

The answer depends on your individual goals and circumstances. But, by understanding the pros and cons of each approach, you can make an informed decision that’s right for you.

Investing For Both

Some assets can provide both capital gains and income. Here is an example of a portfolio that includes both income and capital gains investments:

Rental Property

This can provide a steady stream of income, and it has the potential to go up in value in a booming real estate market. But, it’s an illiquid asset, so it can be difficult to sell quickly if you need the money.


These can also provide both income and capital gains. For example, you can receive dividend payments from stocks, and you may also see the value of your stocks increase over time. However, stock prices can be volatile, so there’s always the risk of losing money.


By owning a business, you can receive income from things like salaries, dividends, and profits. And, if you eventually sell the business, you may also receive a capital gain. But, businesses can be risky, so there’s always the possibility of losing money.

Investing for Income or Capital Gains – Summary

If you’re not sure where to start, we recommend talking to a financial advisor. They can help you assess your goals and risk tolerance, and make recommendations about the best way to invest your money. Do you prefer to invest for income or capital gains? What was your experience? Let us know in the comments below!

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