The Gift that Keeps on GivingPosted:
The best feeling an investor can get is when one receives a statement from their broker and see their investment growing. I too can say that this is a great feeling. The growth of your investment is derived from a couple of sources namely dividend payments, interest income and capital appreciation.
Companies usually have a dividend policy regarding the frequency and amount that is paid. These dividends are paid to shareholders by the issuing company of the stock and represent a portion of the company’s profits or reserves. So think about it, an investor buys a stock that pays dividends and receives a cheque in quarterly intervals, it is an appealing investment. One of the deciding factors for most investors to purchase a stock is if the company pays a dividend.
Interest Income is simply when funds are placed on an instrument such as a government bond, corporate paper, repurchase agreement. The agreed interest that is paid to the investor for the duration that the funds are held is called interest income. The tenure for these instruments varies from 90 days up to 30 years with interest payments being paid quarterly, bi-annually, or annually. Some investors are particularly interested in these investments because it sometimes supplements their regular income (cash flow).
Capital appreciation is the increase of an investment’s market price or in other words, the appreciation in the capital is the difference between the cost price and the selling price. Some investments that are designed for capital appreciation are real estate, mutual funds, stocks and Exchange Traded Funds (ETF’s). It is important to note that capital appreciation in Jamaica is free of withholding tax and most investors are happy with a large capital gain, after all, that is the incentive for making the investment. With the growth of the Capital Market in recent years, knowledge about these instruments has been more widespread and more investors have been participating in this asset class as evidenced by the number of Initial Public Offerings and Additional Public Offerings.
For us to be financially independent, we all need to invest wisely and capitalize on all the opportunities possible. We all have our compelling reasons for making the sacrifice which could be retirement, saving to build that dream house, planning for our children’s education, and a million other reasons. At the end of the day, we all look forward to that gift that keeps on giving, an investment portfolio that provides frequent dividend payments, interest income and capital appreciation. That is why we make the sacrifice! That is why we invest!