A new report from Betashares has shed light on the changing dynamics of investing.
For much of the past two decades, Australian investors were rewarded for prioritising capital growth.
However several headwinds are now changing this landscape.
High valuations, a shifting interest rate environment and recent tax changes are all impacting the potential of growth investing.
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Why growth was king
According to the report, In the decade to 2026, the economy enjoyed an average RBA cash rate of 1.8%, less than half of the 4.6% average since 1990.
This meant debt was cheap, and businesses and investors alike were awash with cash to invest and expand.
While growth benefited from low interest rates, income suffered. Savings accounts paid lower interest, and Australian government 10-year treasury bonds paid an average of just 2.7%.
On top of this, the 50% capital gains tax (CGT) discount effectively halved the amount of CGT paid by investors since 1999, as long as the asset being sold had been held for over a year. This encouraged investing for capital growth.
What's changing?
Betashares said that three factors are pushing income back into focus.
Firstly, interest rates have raised the floor for income.
Higher rates mean savings accounts and government bonds can now offer attractive yields, making income investments more competitive.
Secondly, tax changes have narrowed growth's advantage.
Changes to capital gains tax from 2027 will reduce some of the tax benefits of growth investing, narrowing the gap between growth and income strategies.
Finally, higher valuations raise the bar for future growth.
ASX 200 valuations are well above pre-pandemic levels, meaning investors are paying more for each dollar of earnings and future growth may be harder to achieve.
In short, with income yields higher, growth's tax advantage reduced, and valuations elevated, income investing is looking increasingly attractive relative to growth investing.
You don't have to pick one or the other
It's important for investors to understand this doesn't mean you need to abandon growth equities and only focus on income.
The more useful question is not whether to be a growth investor or an income investor, but whether you are being deliberate about where your returns come from. A portfolio that earns income through dividends, bonds or high-yield savings alongside capital growth is no longer a conservative retreat, but a considered response to a landscape that looks meaningfully different to the one we navigated for the past decade.
For investors looking to target high-yield companies, there are several ASX ETFs to consider.
Income focussed funds include:
