Growth, Income and Retirement Investing

Investing is the specialty of Top Gun Financial Planning.  We specialize in all kinds of investing: Growth, Income, Retirement and College.

Building Wealth

Growth investing focuses on capital appreciation.  It is for people at a stage of life where they are focusing on building their wealth and can meet all of their living expenses from their salaries.

In investing for growth, we try and pick out fast growing companies or companies that will profit from fast growing trends whose stocks are a good value.  For example, many years ago I bought the stock of fast growing company called the Cheesecake Factory (CAKE).  I was living in Los Angeles at the time and enjoyed the quality of their food.  When I read their financials I saw that they were just getting started in their expansion and planned to spread throughout the United States.

Yahoo! (YHOO) is an example of a company that stands to profit from a fast growing trend: the movement of advertising from print to the internet.

Investing for Income

Income investing focuses on capital preservation and current income.  It is for people at a stage of life where they need/want their investments to provide them with some, a lot or all of the income to meet their current living expenses.

In investing for income, we pick out dividend paying stocks, investment grade and junk bonds.  Stocks provide a cushion against inflation so we try to put as much as we can in large, high quality, stable dividend paying stocks.  However, bonds deliver a higher rate of current return and so we use them when that is required/desired.

It is, of course, possible to take a mixed approach and invest some of your money for growth and some for income.

Retirement Investing: IRAs, 401ks, etc..

Retirement investing focuses on achieving a level of wealth that will allow one to live off of one’s assets, or primarily off of one’s assets, from retirement through the end of life.

In retirement investing, we use a growth strategy within tax advantaged accounts such as 401Ks, IRAs and Roth IRAs.  401Ks and IRAs allow us to deduct contributed money from current income, thus lowering our tax bill.  In addition, they grow tax free – income and capital gains are reinvested without having to pay taxes.

Money invested in a Roth IRA also grows tax deferred but is taxed now and not when you withdraw it in retirement.  For people who are not earning that much right now but expect to be wealthier in retirement it makes sense to use a Roth IRA and pay taxes now instead of later when you will be in a higher bracket.  (The Motley Fool’s site has an excellent case for Roth IRAs, “Why the Roth Rules” by Robert Brokamp, March 15, 2006).

The drawback to these tax advantaged accounts is that you cannot access this money until much later in life – 59 ½ for IRAs and Roth IRAs.

College Investing: Coverdells and 529 Plans

College investing focuses on achieving enough money to pay or help pay for your children’s education.

In college investing, we use a growth strategy within tax advantaged accounts such as Coverdell and 529 Plans.  Coverdell accounts are at the federal level and function like Roth IRAs: the money contributed is not deductible from current income but it grows tax free and withdrawals, which must be spent for education expenses, are tax free as well.

529 Plans are similar in that money grows tax free and withdrawals are not taxed either.

The difference is that these plans are run at the state level and the investment options are limited by the State’s program.  California, for example, has the ScholarShare program.  The money is managed by TIAA-CREF which gives you 5 different strategies.

The advantage of the ScholarShare (and other 529 Plans) program is that you can contribute more money than you can with a Coverdell.  You can contribute a maximum of $2,000 per year to a Coverdell but you can contribute up to $300,000 in California’s ScholarShare program.

Greg Feirman
Founder and CEO, Top Gun Financial Planning

Call Top Gun today at 916-224-0113 to set up a free initial consultation.