Hey Dave Ramsey, What is 'Growth & Income'?

Definition and Examples of Growth and Income Mutual Funds

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When the personal finance guru Dave Ramsey recommends growth and income funds, what does he mean? Is this a category of mutual funds, an investing style, or both? Dave refers to his investment advisers for detailed information but this article provides all the information you need to know about growth and income funds.

What Are Growth and Income Funds?

The simple definition of growth and income is an investing objective that consists of investing in both growth and income securities. This is still a deceivingly broad definition because growth is a broad stock investment objective and income can refer to either stocks or bonds (or both). One could even say that a diversified portfolio of mutual funds, consisting of various stock and bond funds, has a growth and income objective.

Growth stocks are securities of companies that have potential to grow their earnings faster than the average company. Income stocks are those that pay above-average dividends. Bonds, which are included in the broader fixed income category, are inherently income securities because they pay interest to the investor.

A Word of Caution Growth & Income

I like Dave Ramsey and I am happy to tell anyone that he is one of the reasons I began investing in mutual funds. Dave is also good at keeping things extremely simple. Notice I emphasize extremely. This is for good reason: I don't think that Dave Ramsey wants to fool anyone but giving over-simplified, general guidance is far from the specific advice most investors need.

Many growth and income funds conveniently include the phrase "growth & income" in their formal fund name. But this convenient moniker can be misleading. For example, one of the best-performing growth and income funds in recent years is Calamos Growth & Income (CGIIX). This fund does not consist of stocks but rather convertible bonds; there is a large difference. 

A popular example of a growth and income fund is Vanguard Growth & Income (VQNPX), which only invests in stocks (growth stocks and value stocks). While this may deserve the growth and income description in the world of equity investing, there are no bonds in the fund (many income investors like to use bonds in their portfolios).

Bottom Line on Growth and Income Funds

It's potentially a mistake to invest in growth and income funds as a mutual fund type but you may learn how to build a portfolio of mutual funds and create an investment objective that suits your needs best. There's nothing inherently wrong with growth and income funds but there is something wrong with telling large audiences that one particular fund type is suitable for anyone to buy and hold.

Furthermore, there are funds that can be considered growth and income that are not always categorized as such. For example, S&P 500 Index funds will naturally hold a combination of growth stocks and value (income) stocks. If an investor already holds a fund like this, and millions do, they don't need another growth and income fund.

But with all that said, this consists of general information that may or may not be applicable on an individual basis. Therefore it is important that investors find funds that suit their personal goals and tolerance for risk and to do their own homework, rather than read or listen to one perspective. Another option is to hire a good investment advisor.

Updated May 30, 2019, by Kent Thune.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.