One of the most frustrating and difficult tasks that an venture adviser must often overcome is that investors/ clients often do not clearly understand their venture objectives and goals. These objectives might be speculative, aggressive growth, growth, balanced, or income. They may also fall into a collection of goals such as: child’s education; retirement; saving for a home; etc. Advisers should be sure that a client fully understands what he wants to perform before discussing venture alternatives, because what may be phenomenal for one personel could be fully inappropriate for another.
One of the most generally misunderstood concepts by many investors is the idea of rate of return. This conception might properly refer to the interest or dividend received on a particular investment. In other words, if someone invests ten thousand dollars (,000) and receives five hundred dollars (0) per year in dividends, the rate of return is five percent (5%). Many people, particularly those invested in Mutual Funds, have a tendency to also add in any Capital Gains received, but since capital gains on a mutual fund, by definition, are returns of capital, these capital gains do not growth one’s rate of return. For example, if a mutual fund is priced at ten dollars () per share, and it pays fifty cents (50cents) in dividends, the rate of return is five percent. The declaration of a capital gain of, for example, one dollar () per share if not an additional ten percent, but rather plainly adds a proportionate additional of shares, while the per share price drops by the capital gains distribution.
There is someone else term used in investing called Total Return. This is calculating by adding a composition of any dividend declared to any appreciation in the price of the share. So, for example, if one invests ten thousand dollars (,000) and exactly one year later it is worth ,500, the Total Return would be 25% for that year.
Many citizen who state that their objective is income often complain when their venture does not appreciate as much as others do, especially during rising markets. However, if the objective is income, then one must look at the Rate of Return, as mentioned above. There are also those that are curious in something known as income with Preservation of Capital, which means maximizing income received while preserving as much as potential the venture corpus. Obviously, this requires a more restricted and often more conservative venture strategy, which will generally or often consequent in a lower rate of return than when the preservation of capital restriction is not a factor.
There are those that are finding for Growth, meaning the value of their corpus “grows” over time, and that is their traditional objective. This scenario is generally best distinguished for individuals that have years to invest, and are finding for long term growth. There are a collection of degrees of risk in growth investments, depending upon the underlying portfolio. These range from aggressive and speculative, to more conservative and blue-chip. An investor’s potential to withstand risk and the comprehensive venture strategy are guidelines that should be used.
These are just a few venture alternatives. My caveat to any investor is to fully investigate any investment, know your objective and goal, don’t be greedy, have a ease level with both the venture and the someone you are investing with, and never put “all your eggs into one basket.”