Should we invest for income, for growth, or for both?

Charities often ask whether they should invest for income or growth. It sounds simple, but the answer depends on your organisation’s goals, timeframes and attitude to risk. Here is a breakdown of the major factors to help guide your decision.

Start with your investment goals

What are you trying to achieve, and when will you need the money?

If you need income now to support your activities, you might prefer government or corporate bonds. These investments pay regular interest (known as coupons) and return your original investment at a set date.

If you are saving for a future need, for example — major repairs to your social housing in 2040 — you may prefer investments with more room to grow, such as company shares.

Understand income and growth

• Income investments (like bonds) offer predictable returns through interest payments.
• Growth investments (like shares) aim to increase in value over time and may pay dividends, a share of company profits.

Most investors use a mix of both to balance risk and return. One traditional approach is the 60/40 model: 60% in shares for growth and 40% in bonds for stability. 

Coupons vs Dividends

Both coupons and dividends are ways your investments can generate income, but they work differently.

Coupons

These are fixed interest payments from debt investments like bonds. You know what you will earn and when you will get your money back.

Example:

You buy a bond from XYZ Plc with a 5% coupon, maturing in 2030.

• You will receive £50 a year for every £1,000 you invest.
• In 2030, you will get your £1,000 back.

The value of that bond may change before 2030, depending on how attractive it looks compared to other investments. If similar bonds are offering 6%, investors may be less willing to pay full price for a bond that pays 5%.

So, when buying bonds, think about:

• What you are paying today?
• What is the coupon rate?
• How long until maturity?
• The financial strength of the issuer.

Dividends

Dividends are a share of a company's profits paid to its shareholders. These are usually paid quarterly or half-yearly, and the amount can vary.

Example:

A company might pay a dividend of 3% one year, then reduce it to 2% the next if profits fall or it wants to reinvest more into growth.

Unlike coupons, dividends are not guaranteed. The board of directors decides how much to pay, based on earnings and future plans. 

Some companies also offer dividends in the form of extra shares instead of cash.

Value vs. Growth stocks

These terms describe how companies use their profits.

• Growth stocks reinvest earnings to expand, for example, building a new factory or entering new markets. They may not pay dividends early on but could grow quickly.
• Value stocks are more established. They aim to balance reinvestment with consistent dividend payments. Investors often see them as more stable, especially in uncertain markets.

Your organisation’s view on risk may influence which type you prefer.

Thinking in terms of total return

Rather than choosing between income or growth, many charities aim for total return, combining both. Let’s say you need to spend 4% a year. You could:

• Earn 3.5% from coupons and 1% growth.
• Or get 2% in dividends and 3% growth.

In both cases, you might need to sell some assets to meet your spending needs. What matters is the overall return, not just where it comes from.

The role of investment funds

Collective investments (often called funds) pool your money with other investors and are managed professionally. They follow a clear strategy, which might focus on income, growth or a blend of the two.

You can choose:

• Income units: that pay out dividends and interest.
• Accumulation units: that reinvest earnings to grow your investment.

You can usually switch between the two easily, depending on your needs. This may incur costs.

Bringing it together - A quick decision checklist

• Purpose: What are we funding (operations now, projects later, or both)?
• Horizon: When will we need the money?
• Risk & liquidity: How much volatility can we accept? How much cash do we need, and how quickly?
• Approach: Are we aiming for income, growth or a mix (total return)?
• Governance: Do our investment policy and spending rules reflect these choices? Are we reviewing them regularly?