Investment Returns of Equity Market

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As we mentioned in previous article, we know that our government only represents about 30% of our retirement income, the company retirement pension plan offers another 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:

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