Four Types of Returns to Expect From Your Investments
- in Finance
Expecting good returns from your investments is the primary reason why people invest in the first place. While the potential to make a profit is always there, understanding and anticipating different types of returns can help investors maximize their gains. For example, if you invest in precious metals and choose GoldCoins over bullion, you may be wondering “is goldco legit?” Whether it’s gold coins or stocks, bonds, or ETFs (Exchange Traded Funds), there are four main types of returns you can expect from your investments. Let’s dive right into them here.
Net Income
Do you ever look at your investment statement and wonder, “how much money did I actually make?” This is a great question to ask yourself, as net income is the most basic type of return you can receive from an investment. It’s simply the amount of money you earn after subtracting all expenses related to that particular investment.
In 2022, net income was expected to remain a solid source of return for investors. Investments like stocks and bonds typically provide this type of return.
Dividend Yield
The second type of return you may receive from your investments is the dividend yield. This is money paid out by the company that issued the stock, bond, or ETF you’ve invested in. Dividend yields vary depending on the type of security, but generally speaking, the higher the yield, the better. Dividend yields are an important part of total return and can significantly increase your overall profits. In fact, did you know that you can actually make more money from dividend yields than from the stock’s price appreciation?
Capital Gains
Capital gains refer to the profits you make when selling certain investments at a higher price than what you bought them for. For example, if you purchased a stock for $10 and then sold it for $20, your capital gain would be $10. This type of return is the most common among investors who prefer to buy and hold onto their investments for a longer time. In some cases, capital gains may be taxed at lower rates than normal income. So bear in mind that capital gains can increase your overall returns if handled correctly.
Total Return
Finally, total return refers to the combined performance of all four types of returns we’ve discussed above. It’s often expressed as a percentage, calculated by subtracting the initial cost of the investment from the final return (net income, dividend yield, and capital gains).
The higher your total return, the better. In a sort of way, total return is the ultimate measure of success in investing. After all, nothing beats the feeling of knowing you received a good return from your investments. With proper research and knowledge, you can identify which types of returns will work best for you. Whether it’s net income, dividend yield, capital gains, or total return, understanding how each type works can help investors maximize their profits. So before investing in anything, ensure you know exactly what kind …
