So you've done the hard yards and saved up a total of $20,000.
Firstly, well done.
It's not easy to stick to a budget to save money, regardless of what your wages are.
Just by accruing $20,000, you are already ahead of many fellow Australians.
Now you want to take the next step and invest this hard-earned.
Do you try to grow the nest egg as fast as possible, or should you try to nab passive income?
The first thing to consider is your own personal priorities and personality.
Are you the type of person who would love to have a massive balance one day? Or would you rather some passive income as soon as possible, so you can start relying less on your day job?
Everyone's different and there is no right or wrong answer to this.
One surprise that I can reveal to you is that you can reach similar destinations regardless of which path you take.
After 10 years with growth shares
Let's say you choose the growth shares strategy.
You'll want to choose a diversified portfolio, so I'm going to use the Betashares Nasdaq 100 ETF (ASX: NDQ) as a proxy.
That exchange-traded fund represents the 100 biggest companies on the Nasdaq exchange, which is dominated by technology and other growth stocks.
Keeping in mind that history never dictates what might happen in the future and that we're referring to this for calculations only, the Betashares Nasdaq 100 has roughly doubled over the last five years.
That equates to a compound annual growth rate (CAGR) of 14.8%, rounded down.
After 10 years with those growth shares, your lump sum will have expanded to $79,514.
From then on, even if your growth portfolio slows down to gains of 13% per annum, if you sold off the gains each year, you'll be raking in an average of $10,000 of passive income.
Or you could keep it invested, and after 20 years from your initial investment, your $20,000 will have grown to more than $316,000.
Not bad at all.
After 10 years with dividend shares
This time let's go down the passive income path.
Again, you'll want to put your $20,000 into a diversified basket of dividend shares.
But for illustrative purposes, we'll use Accent Group Ltd (ASX: AX1) as an example to show how this can be done in real life.
The retail company is paying out a dividend yield of 9.16% fully franked. According to Market Index, this gives Accent Group a 13.45% gross dividend yield.
For the first ten years, if you kept reinvesting this income, your investment could end up at $70,643. That's conservatively assuming zero share price growth.
From that point, the dividends will provide you with a passive income of about $9,500 per annum.
So after 10 years, you're in a similar situation regardless of whether you chose the income or growth strategy.
This demonstrates how there's more than one route to the promised land, and it's often a matter of personal taste.
That axiom's not just for the income-growth dilemma.
Some people prefer ETFs over individual stock picks, and some like US stocks over ASX shares. They can all eventually kick the same financial goal.
