growth stock mutual funds
What is the difference between a growth stock Roth IRA (no load, low fee) fund and a Franklin Income fund?
What is the difference (in simple terms) between a growth stock and an income fund, such as a Franklin Income fund? I’m 28 years old and want to start a retirement savings. I’ve been told that growth stock is the way to go over an income fund, but I don’t know why. Can someone help me understand the differences or direct me to a source?
Thanks in advance for your input!
It looks like the Franklin income fund (FKINX) is currently composed of about 65% bonds (including 10% convertible bonds) and 33% stock. The last 2% is in cash.
I don’t know specifically what is in the growth stock fund you are looking at without knowing the fund name, but here is some general background information.
Generally bonds are preferred by people who are in retirement, stocks are preferred by younger people who are saving for retirement. Most likely the growth fund your are talking about is mostly stocks, while the Franklin income fund is mostly bonds.
Stocks have historically produced much higher long term returns than bonds, however the stock market fluctuates wildly on a day to day basis due to speculators and day traders. Because younger people who are not yet retired typically have a long time to ride out the short term fluctuations of the stock market, they generally prefer the higher long term returns in stocks and don’t mind the ups and downs as much. Conversely, older people in retirement prefer the steady income produced by bonds or bond mutual funds and are willing to give up some returns in order to have more stability and certainty.
Vanguard is a very popular mutual fund company. They charge some of the lowest fees in the industry. Their funds are passively managed (meaning that they don’t try to beat the stock market as a whole). They are highly diversified. This approach is preferred by many because it is very simple, but others prefer the potential for higher returns that actively managed funds could provide.
With this difference in mind, check out some additional information from Vanguard.