What is the difference between growth and income assets?
Growth assets provide capital growth and income assets provide a stable income
Growth assets are assets which generate a return both from capital growth and from the distribution of profits through dividends. Typical growth assets are equities (i.e. shares), infrastructure and property. Growth assets all carry the risk that the investor will lose money or not earn the expected return.
Income assets are generally debt instruments such as cash, term deposits and bonds. These pay interest and the investor gets his investment back at the end of the agreed term. Income assets typically are less risky than growth assets because there is a high expectation that the investor will be able to get his capital back. Because they are less risky, expected returns on income assets are lower than on growth assets.
Income assets are not always safe, as many NZ investors discovered at the time of the collapse of the finance companies between 2006 and 2012. While NZ Government bonds are extremely safe but pay low-interest rates, bonds issued by heavily indebted companies pay a higher interest rate but have a far larger risk of default.
kōura’s Fixed Income Fund follows strict guidelines aimed at minimising this default risk by investing exclusively in Investment Grade debt, i.e. NZ Government, municipalities and high-quality companies. It also limits its exposure to any single debtor.