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The wealth of information on this site is available in a handy-sized book. Buy it from your bookseller, or online here.

ISBN 978-1-906439-21-7

 

 

   

Investment returns come in three flavours: 2 Income Stream

Suppose you buy a house with the intention of renting it out: as long as it is let you receive cash every month in the form of rent. As you have no intention of selling it in the foreseeable future, you are pretty relaxed about what it is worth from day to day. What matters to you is how much rent you receive and whether it arrives on time. Similarly you can buy financial assets that are never going to be redeemed: what you get in exchange for your money is a regular series of payments – an income. For example, undated Government Bonds (gilts) pay a specified amount of money every six months. They will never be redeemed and if you want to take your money out you will have to sell them through the market, but as long as you hold them you will receive a guaranteed income.

Companies usually pay dividends to the holders of their shares. Whilst you don’t have any guarantee that dividends will always be paid, larger, well-established companies try to keep up a history of dividend payments that increase over time as the company grows. Of course, the fortunes of individual companies can change. Not many of the companies that once made up the Financial Times Index still exist today, and those that do have seen many changes. But if you invest in a large enough number of companies you can expect to receive a pretty regular income in the form of dividends, and also one that increases over time. We will be talking much more about this question of growth later on, because it is the main reason why shares (you will also see them referred to as equities) are so important as long-term investments.

 

  9 October, 2008 © 2008 K.R.Wade and Co Ltd prev page next page