Understand Financial Returns

Basic Rules

 

Where is the return comes from?

Interest raturn chart
Stock return chart
Index total return around 11% long run

Types of Returns

 

APR and EAR

 

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows:

Dividend yield is a way to measure how much cash flow you are getting for each dollar invested in an equity position - in other words, how much "bang for your buck" you are getting from dividends. Investors who require a minimum stream of cash flow from their investment portfolio can secure this cash flow by investing in stocks paying relatively high, stable, dividend yields.

 

Rule of 72

How long will it take you to Double your investment? --- Dividend 72 by your rate of return.

For example, If you earn 10% a year on a $5,000 investment, it will take 7.2 years (72/10) for your investment to become $10,000.

Rule of 113

How long will it take you to Triple your investment? --- Dividend 113 by your rate of return.

For example, If you earn 9% a year on a $5,000 investment, it will take 12.55 years (113/9) for your investment to become $15,000.

 

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