Many of us aim to earn income from our shares to help top up our cash when we retire. And most will think that dividend shares are the way to go. I mean, growth shares are for young get-rich-quick types, aren’t they?
Well, let’s think about some of the best investment gains of the past few decades.
Billionaire investor Warren Buffett is known for seeking great companies at fair prices. He doesn’t go for high-tech growth, as he says he doesn’t understand it. He likes insurance, oil, and cash-cow stocks like that.
Three million percent
Since he took over Berkshire Hathaway in 1965, its stock has soared by 3m%. In the same time, the S&P 500 index rose close to 25,000%, with dividends.
Just look how the price has gone this century alone:
That’s a top line share price growth from ace stock picker Buffett. And in all those years, Berkshire Hathaway hasn’t paid a cent in dividends.
But there’s a lot of very rich retired shareholders out there, selling a few shares when they need to and having a great time.
What would we do with our dividends anyway? While we’re still building our pot, the best we can do is use them to buy more shares. So, why not let Warren Buffett reinvest the cash for us and save us the time.
Tech stock growth
What springs to mind when we think about the best tech stock successes of the internet era? I don’t know about you, but I think of Amazon.com every time.
Just look at this growth:
The price has dipped a bit in the past couple of years, along with most US tech stocks. But that’s still a stunning result. Those numbers on the right of the chart are percentages, by the way.
Oh, and Amazon doesn’t pay dividends. But again, with a gain of 85,000% I’d be quite happy to raise the cash I need by selling some shares at regular intervals.
Growth stock risk
I have cherry-picked a couple of the best long-term stocks I can think of. And growth shares do typically carry more risk than mature income shares.
If I’d had successes the size of Berkshire Hathaway or Amazon, that wouldn’t bother me. I’d have easily enough profit to be able to take the risk.
But, I’ve seen too many growth stocks crash and burn to put all my cash into them. And when I come to retire, I just don’t want the risk.
Move to safety
My plan will be to sell whatever growth stocks I have in my Stocks and Shares ISA at the time, and move to dividend stocks.
But for now, I still want a part of my ISA cash in growth stocks. That’s why I bought Scottish Mortgage Investment Trust. It holds a number of US tech growth stocks, and helps spread the risk. But the risk means it would only ever be a small part of my ISA.
Now, if only I’d known who Warren Buffett was 40 years ago.
