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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76419  
Subject: Re: Yield vs growth investing in IRA Date: 7/27/1997 1:25 PM
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Greetings, Wayneb, and welcome to Fooldom.

<<Does this make sense? I figure it's a good idea to take advantage of the tax deferral of an IRA by buying high yield mutual funds (relative term, the highest yielding funds I can affort are running 7% yield) with decent total return so that the reinvestment of yield causes your number of shares to grow fast (relative to low yield investment) and you are not paying current tax on the income. If the market is down when it comes time to sell, the larger number of shares somewhat mitigates a drop in NAV. As
opposed to say a growth fund or individual stocks where your number of shares grows more slowly and your only chance to make a profit is if the NAV or share price happens to be higher when you sell than when you bought all those years ago. BTW, I think I am misunderstanding a fundamental point on how one expects to profit from a buy and hold growth strategy. How much growth can one expect long term when good quality stocks or well performing growth mutual funds are already highly priced? Do long term inv
estors in a Coke or Microsoft expect the share prices to be multiples of what they are today in later years? If the share prices have not increased by multiples how have they made money?

Well there's my ignorance for all to see. I appreciate any discussion of these points.
>>

Hey, if investing that way makes sense to you, who am I to argue? While not my cup of tea, the argument has merit and may be perfectly appropriate for the level of risk you wish to absorb.

As to individual investors expecting the share prices of Coke or Microsoft to be multiples of what they are today, I sincerely doubt it. Companies tend to have stock splits when share prices reach stratospheric levels to keep share prices psychologically and monetarily within reach of new investors. All that means to old investors is that instead of having 50 shares worth $100 each, they now have 100 shares worth $50 each. The total investment remains the same. But certainly someone investing in these firms expects the dollar amount they invest to increase in multiples. And history shows that to be the case. Their return comes from both price appreciation and dividends through the years. That's how they make money.

Regards.....Pixy
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