As we mentioned in previous article, we know that our government only represents about 30 and many of us do not have one. It is up to individuals to invest wisely short and long term in order to make up for the short fall if he or she would like to live comfortably after retirement without giving up some retirement plans. In this article, we will discuss the investment returns of common and preferred shares. Investors invest in the companies equity shares expecting a return on their capital in one of 3 ways: cash dividends, stock dividends, or capital gains.
1. Dividends
a) Common stock dividends are not promised in advance or paid automatically, as is interest on debt securities. It depends on meeting the board of directors of the corporation to decide whether a dividend will be paid, when it will be paid, and how large it will be and when declared, is usually paid every 3 months in form of cash dividends.
b) Sometime instead of cash dividends, companies may offer shareholders new shares in the company that are reinvested in more stock in the company. In this case no broker is required because the company does the transaction so they can preserve cash.
Also worth to mention that all preferred shares at first issued have a stated par value and carry a fixed dividend rate that may be expressed either as a percentage of par value or as an amount per share.
2. Capital gains
a) in addition to dividends,investors invest in common stock looking for stock price appreciation known as capital gains. Sold of capital gain stocks are taxable in the year stocks sold.
b) Sometime, investors may face the possibility of a capital loss if they sold stocks below purchase price. Capital loss are tax deductible against any capital gain or against future capital gains.
c) Remember most companies tend to invest profits back into the business, instead of paying them out as large dividends to shareholders.
I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:
Table Of Investment Returns
Imagine (excuse the pun) you make a stock investment and as soon as the trade is concluded, you lapse into a coma. You wake up days, weeks, months or years later. How will you know if you wake up happy with your investment?
The answer is obvious the lessons are not.
If your return is more than you expected, you're happy. If not, you're disappointed or depressed.
So what are the lessons?
Lesson #1 You usually don't fall into a coma after making a trade. Instead, you track every single daily (hourly) up and down movement and rarely, if ever, play the trade/investment through to your original decision-making horizon the period over which you originally invested.
Many investors invest with a let's see what happens approach that has them constantly second-guessing themselves, creating immense levels of stress and sub-optimising their returns. If the stock goes up, they might sell prematurely, if it goes down, they might sell at a loss in fear of a further drop.
You need to approach your investments knowing ahead of time your particular decision-making horizon for each one, so that you can appropriately mix and match investment size and risk/return with the decision-making horizon in mind thus maximizing returns and minimsing stress and lost opportunity (costs).
Lesson #2 The second lesson is selecting the right investment for the right decision-making horizon. Some investors day trade stocks whereas others have a buy and hold strategy both benefit from knowing how long their horizon is. The worst thing you can do is buy, hold and lose sight of time. Returns are time dependent. A 100% return sounds great, but if it took 10 or more years, in today's terms, that is a very poor return on capital.
So, how do you select the right stocks with a decision-making horizon in mind You must match the projections of growth with YOUR horizon. If a company has a 3-year plan that is attractive, but your decision making horizon is 1 year, that's a sub-optimal match just .
Lesson #3 Make the trend your friend and match it to your horizon as much as you can. If a company has an aggressive growth strategy within a bigger trend (e.g. commodities) that you believe they can deliver on and your horizon and their projections match up, it's definitely something you want to consider and put on your short list.
Lesson #4 When you're in a coma, you can't keep researching and over-analysing every option available. When you are awake you can but that doesn't mean you should. Of course there's a fine line involved and interpretations of this lesson will vary between investors, but Warren Buffett is notorious for sticking to his horizons even when everyone's telling him he's wrong. His bank account is proof that he knows something few people ever learn!
Lesson #5 Last and most importantly you can use this secret to unlock unlimited opportunities in other investments you make be they in real estate, projects, personal or entrepreneurial ventures. Once you know how long you're in for, you can make the necessary time, effort and resource commitment to ensure a stellar return or outcome.
When you match them up, it's like all the stars in the universe lining up and magic starts to happen. When you don't it's as if everything is conspiring against you producing disappointing or disastrous results.
Summary: The most simple secrets are often the most powerful and valuable, like this one every single successful master investor alludes to this concept and I can guarantee you it'll improve your results. How much As much as you abide by its principles!
Both Kyle Norton & Les Freeman are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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