Why Dividend vs Growth Investing Is a False Dichotomy
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Why the Dividend vs Growth Investing Debate Is a False Dichotomy

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If you have been around investing for any length of time, you are all too aware that one of the most heated and interminable arguments is whether dividend or growth investing is better. Worse, there is a tiny—but loud—faction of folks that not only argues that growth investing is better, but that dividend investing is a dumb or worthless strategy (e.g., the dividend-irrelevance gang). The question is: Who’s right and what’s the actual truth?

The truth is that there is no right or wrong answer to the growth vs dividend investing enigma because, at its core, it is a logically-flawed questionone that is predicated on a false dichotomy.

Now to be fair, it is not just folks on the “growth” side of the equation who are guilty of this. There are plenty of DGI and FIRE folks who believe growth investing is the devil and are more than willing to shout it from the rooftops.

A word of caution: When your investing approach becomes more of a religious or cult-like obsession, it’s time to step back, get a grip, and reassess your facts and mindset. You may just be missing the forest for the trees.

While our site is unabashedly dedicated to helping folks improve as dividend-growth investors, you will never hear us make disparaging comments about other investing options (e.g., growth investing). Why? Because I utilize lots of diverse investing strategies and approaches—including a dividend-growth portfolio, value portfolio, growth portfolio, and options trading account.

Do I think DGI is a critical piece of the investing puzzleone that every investor should utilize? Absolutely! That’s why a love this site. But that doesn’t mean there aren’t other pieces you may need or want in order to build and complete a beautiful financial puzzle!

Thus, I want to take a moment to explore this fundamental and hotly-debated investing question because it’s critical that you understand the truth about all the strategy options you have at your disposal as an investor. There is a lot of misinformation out there and, if you can’t sort the wheat from the chaff, you’re going to end up with a portfolio that doesn’t taste as good as it could and should.

Table of Contents

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Dividend vs Growth: The “Only One Way to Invest" Fallacy

As I noted in the intro, there are lots of ways to achieve success in investing. Those who have actually built wealth know this. Why? Again, because they have (and continue to) use lots of investing approaches, strategies, and methods!

Those who advocate that there is only one “best” or “correct” way to invest—and they exist on both sides of the growth and dividend-growth investing debate—only demonstrate their underlying investing ignorance when they do so.

When you find someone that either (a) argues that everyone should be investing with one strategy or process (of course… theirs!) or that (b) contends that a given approach or strategy is horrible and no one should be using it, one or more of the following are typically true:

When I hear someone bashing an investing strategy or approach (especially a widely accepted one), I immediately just walk away because it’s nearly always a “tell” for investing ignorance.

Again, you will rarely ever hear those who have actually achieved long-term financial success discount an investing style or strategy. Why? You should be detecting a theme here… it’s because they realized a long time ago that there are a lot of paths to investing success—and they’ve likely taken many of them.

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Investing Represents a Continuous Spectrum of Potential Opportunity

Investing is not a closed set containing two fixed points—called growth and dividend. To argue otherwise is to establish a false dichotomy predicated on oversimplification and an either/or logical fallacy.

Instead, investing is a broad and continuous spectrum—one consisting of millions of points with varying degrees of risk and potential reward.

There is no “one” best or correct way to invest. In fact, there is not even “one” way to growth invest, or value invest, or dividend invest.

For example, when it comes to dividend investing, there are lots of options—including:

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How about growth investing? Are you investing in more established stocks with 10-30% CAGR potential? Or, are you swinging for the bleachers with highly speculative companies—trying to buy the next Google at $5 and capture a 100-bagger?

While these broad approaches (or labels)—growth, value, and dividend—are easy to fixate on, they only represent segments of the overall investing spectrum. The reality is that there are an infinite number of strategy variations along it.

Investing Spectrum

Whenever someone tells me that “growth” investing is the best strategy, I like to reply, “Great! What kind of growth investing?” I find that they usually struggle to answer because they are fixated on a false dividend vs growth dichotomy rather than recognizing the real nature of investing—it’s a continuous spectrum… not two fixed and mutually-exclusive points.

How you invest is not an either/or question. Don’t fall for those who oversimplify the issue out of ignorance or ulterior motives and argue otherwise!

Growth and Dividend Investing Are Not Mutually Exclusive

Not only is the growth vs dividend investing debate a false dichotomy, but—more importantly—no set of points (however you define them) along the investing spectrum are mutually exclusive.

All investors need to accept and embrace this truth. The actual truth is that each and every point along the investing spectrum can be a successful investing strategy—individually and when combined with others.

The degree of success achieved is not as much a matter of the strategy itself as it is a matter of four drivers:

Let’s take a look at each of these requirements…

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Managing Risk and Reward when Investing

In general, the further you move to the left along the investing spectrum, the higher your potential reward but the higher your potential risk.

For example, if you employ a highly-speculative growth strategy, you may find the next Google for five bucks and win big… however, you may also never discover one and lose equally big.

This is why you need to not only utilize diversification within a given portfolio but also in terms of your investing strategies. Furthermore, you need to allocate capital based on the risk/reward profile of each strategy.

I personally recommend a layered or pyramid approach:

Multi Strategy Investing Plan

Your pyramid may look totally different. For example, you may have two growth strategies: a highly-speculative one and a more conservative one. There are an infinite number of strategy options and combinations. Again, it’s not so much about the strategies you employ… it’s about having the right diversification and allocation.

Managing Strengths and Weaknesses of Investing Strategies

There are different market environments—for example, trending (bear & bull markets) and range-bound (consolidations, tops, and bottoms).

These environments occur on micro (short-term) and macro (longer-term) levels and are often tied to the business (or economic) cycle.

Different investing strategies perform differently in these environments. You must understand the strengths and weaknesses of a given strategy so that you know when to (a) put the pedal to the metal (increase your capital allocation) and (b) when to let off the gas (reduce your capital allocation).

Again, it’s not so much about the strategies you employ… it’s about knowing when to harness them.

Understanding Your Investing Process

Different investing strategies require different processes. Applying a successful dividend investing process to a growth portfolio will likely not end well… and vice versa.

When it comes to process, you need to recognize a number of key components:

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Not every point (strategy) along the investing spectrum will be a great fit for every person. It will depend heavily on (a) your personality, (b) your knowledge, skills, and abilities (KSAs), (c) your risk profile/tolerance, and (c) your investing goals and financial needs.

However, that doesn’t mean that you can’t be successful with multiple strategies… nor does it mean that there are strategies that can’t be highly successful for anyone.

You have to find your sweet spots—strategies that are a good fit for you—and build a comprehensive and cohesive investing plan around them.

Again, it’s not so much about the strategies you employ… it’s about knowing how to harness them.

If you’re interested in learning more about the importance of process in investing, a encourage you to read my article Dividend-Growth Investing Is All About the Process.

Embracing the Proper Investing Mindset

Finally, it doesn’t matter what strategy (or strategies) you utilize if you don’t have the right mindset for them!

Investing is about two primary things: process and mindset. Contrary to popular belief, your mindset (behavioral psychology) plays a far larger role in determining your ultimate success or failure in investing than anything else.

It doesn’t take a rocket scientist to be highly successful at investing (there are lots of wealthy investors that weren’t the sharpest tools in the shed—many of whom will openly admit it!); however, it does take the right mindset.

Again, it’s not so much about the strategies you employ… it’s about having the proper mindset to capitalize on them.

If you’re interested in learning more about the right mindset for dividend-growth investing, I highly recommend reading my articles Paradigm Shift: Dividend vs. Growth Investing Mindset and 6 Ways to Win the Dividend-Growth Investing Mental Game.

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Conclusion

Dividend vs growth investing is a false dichotomyone built upon oversimplification, an either/or fallacy, and a religious or cult-like obsession with one strategy or the other.

The reality is that investing is not a closed set of two fixed and mutually-exclusive points. Rather, it is a continuous spectrum of points—points that represent endless strategy variations and opportunities for success.

Don’t buy the hype or guzzle the Kool-Aid being offered by the so-called “we know best” purist investing cults lol—on either side of the aisle!

Your ultimate success with investing will depend far more on your process and mindset than the strategy or strategies you employ.

Strategies are simply tools. Process and mindset allow us to use the right tool for the right job/environment and to use it effectively and efficiently.

Growth, value, and dividend strategies (and the full range of possibilities each encompass) can all be successful—individually or in combination.

Wicked Capital is focused on dividend-growth investing. We feel strongly that it provides a solid and effective foundation for your long-term investing plan. However, that does not mean that we dislike other investing approaches. To the contrary, we encourage you explore all the opportunities investing provides and to grow your repertoire of options.

We simply strive to help folks become better at one of those tools—dividend-growth investing. (Which we do believe is a critical tool in the proverbial investing toolbox!)

However, many of the fundamental DGI building blocks that we share on our site are also just plain good building blocks for investing in general! They can easily be tweaked and employed in other investing approaches and strategies.

So, if you’re not interested in DGI at this point in your investing, that’s fine! But I encourage you to regularly visit our site anyway—I strongly believe you will find value in our articles even if you’re not a dividend-growth investor.

Soak it all in, take and use what you want, modify it to fit your unique investing strategies, and keep building your portfolio(s) with a solid process and winning mindset!

But whatever you do… Stop fretting over the fake growth vs dividend investing conundrum and just be you! In the end, what matters in investing is the outcome—not necessarily the path(s) you take to get there. Don’t become obsessed with the strategy… focus on the process, mindset, and outcome.

Find the investing path(s) that work for you. Who cares what they’re called or labelled as long as they take you to where you want to go!

Finally, if you’re interested in starting an investing portfolio, we highly recommend using M1 Finance.

If you decide to pull the trigger, please consider using our M1 referral link https://mbsy.co/sZVS3 and we’ll both get some free cash!

That’s just one more reason to start your investing today! It’s never too soon to start working towards your financial freedom!

Featured Image Background by Khusen Rustamov from Pixabay

Doug

Doug is the founder of Wicked Capital. He holds an MBA, BBA (Summa Cum Laude), and AAcc from Liberty University and has over 20-years of corporate finance, accounting, and operations management experience--spanning the public, private and nonprofit sectors. He is a member of Sigma Beta Delta International Honor Society in Business Management and Administration, Delta Mu Delta International Honor Society in Business, and Tau Sigma Academic Honor Society. He is also proud to have served his country as a member of the 82nd Airborne Division. His professional wheelhouse is corporate financial reporting, analysis, and forecasting—buoyed by his passion for fundamental analysis and valuation. Doug has been actively engaged in trading and investing for several decades, with a focus on value and dividend-growth investing. He has authored several books and, when he's not busy living the corporate dream, trading and managing investment portfolios, he enjoys playing the drums and spending time with family--especially in the Outer Banks of NC.

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