FINANCIAL FOCUS; ETFs, bonds, dividends, stocks, investments...

 

LETS TALK ABOUT TOTAL RETURNS FROM INVESTMENT IN STOCK 

1⃣Many investors focus their attention on how a stock's price changes over time. However, when you're talking about dividend-paying stocks, that doesn't tell the entire story. 

Let's say that you bought EQUITY shares on 30th September, 2019 and sold them on 29th June, 2023, and you want to determine your total return on your investment.

2⃣If you bought EQUITY shares for Ksh27.23 per share three years ago, and you sold those shares today for Ksh38.95 per share, your capital gain is Ksh11.72 per share. However, EQUITY also paid total dividends of Ksh8.75 per share over the three years, that changes the total returns.

3⃣ The total return you received is Ksh20.47 on your investment in EQUITY stock. Instead of the Ksh11.72 capital gain per share, which translates to about 43%, investors actually made 75.2% total returns when taking total dividends paid into account.

4⃣Total return takes both capital gains and dividends into account, in order to provide a complete picture of how a stock performed over a specified period of time. This can be extremely useful for evaluating investment returns among dividend-paying stocks.

5⃣ Total return allows you to see the big picture of how well or poorly an investment is actually performing and not just how its share price is performing. Many stock investments have a combination of dividend income and capital gains, so total return combines both.

6⃣ Many investors make the mistake of just focusing on how much their stocks move up and down, often ignoring dividend income. Similarly, many income investors often judge their investments primarily on the dividends they pay, and don't pay enough attention to capital gains.

7⃣Total return can be highly useful when assessing the performance of your investments, and comparing their performance to each other, or to the overall stock. 

ETFs INVESTMENT IN STOCK MARKET 

One of the biggest challenges when investing in the stock market is picking which stocks to buy. And it turns out human beings are very poor in picking stocks.

Here's why index funds/ETFs are a simpler way of investing in the stock market:

Let's start with the basics:

You've probably heard of things like the S&P 500, Nasdaq 100 or the Dow Jones Industrial Average. If you haven't, you will learn about them today. All these are indices that track the performance of various sectors of the stock market.

An index is a method used to track the performance of assets in a standardized way. It measures the performance of a group of securities intended to replicate a certain sector of the market.

Examples of indices:

S&P & 500 index - Tracks performance of the top 500 U.S. companies.

Nasdaq 100 - Tracks performance of the largest non -financial companies that are listed on the Nasdaq stock market

Dow Jones Industrial Average - 30 large companies on the Nasdaq & NYSE.

How do you invest in them?

Since an index tracks the performance of a market sector, you cannot invest in the index directly. You can only invest in the index through an index Fund or an Exchange Traded Fund(ETF) that mirrors the performance of the index.

ETFs are traded like stocks on the stock exchange and they mirror their respective indices. Index funds are mutual funds that hold stocks of all the companies of a certain index and seeks to match the performance of that index.

The main difference is that ETFs can be traded at any time of the day when the markets are open. Index funds on the other hand can only be traded at the price set at the end of the day.

PIECES OF ADVICE TO INVEST BETTER IN 2023

1⃣. If you earn a salary, get a standing order for the amount you want to invest every month. Force yourself to save first and live with a lower salary.

2⃣. Have an end goal for your savings. Having a purpose will keep you motivated even when you want to quit. 

3⃣. Do your research before putting your money into any investment, talk to people, read about the investment, and consult with investment professionals.

4⃣. Start as soon as possible. The effect of compounding over many years is what makes the fundamental difference. 

5⃣. Reinvest what you earn as much as possible over the years, reinvestment and time are what create a compounding effect on your investments.

6⃣. When you are young, consider more high-risk, long-term, growth-related investments like property and the stock market that will give you growth in the long term. As you grow older you’ll need income-generating, low-risk investments to support your livelihood.

7⃣. Don’t over-concentrate on one or two investments, put your money into multiple categories; stocks, bonds, property, and others, because each investment behaves differently at different times, and your risk will be lowered.

INCOME EXPANSION 

Expanding your income by actively seeking additional avenues is a wise and strategic approach that can significantly accelerate your journey towards achieving your financial goals.

When you rely solely on a single source of income, you expose yourself to potential risks and limitations. However, by exploring new opportunities, such as starting a side business, investing in income-generating assets, or acquiring new skills to increase your market value, you open doors to a world of possibilities.

Remember, every additional avenue of income you create is like planting a seed that has the potential to grow into a flourishing tree. It not only boosts your overall earning potential but also provides a safety net during unexpected financial challenges.

Expanding your income not only provides you with the financial means to save for your dream house, but it also empowers you to fulfill other aspirations and create a more fulfilling life for yourself and your loved ones.

Remember Rome wasn't built in a day, and neither will your empire of wealth. Embrace setbacks and failures as valuable learning experiences that propel you closer to your goals. Stay committed to your vision.

So, embrace the wisdom that lies in diversification, and watch as your financial dreams transform into reality.

IMPORTANT THINGS TO UNDERSTAND ABOUT DIVIDENDS:

Dividends are a portion of a company's profits that are paid out to shareholders. They can provide a steady stream of income for investors, or be used to reinvest in the company, which can lead to future growth.

There are two main types of dividends: cash dividends and stock dividends. Cash dividends are paid out in cash, while stock dividends are paid out in additional shares of stock.

Dividends can be paid semi-annually, or annually. The amount of the dividend is usually determined by the company's board of directors.

When choosing stocks, you should look for companies that have a history of paying dividends and that are likely to continue paying dividends in the future.

You can choose to reinvest the dividends or to take them in cash. Reinvesting dividends can help you grow your wealth over time while taking dividends in cash can provide a steady stream of income.

Dividends can be a good way to generate income for investors, especially retirees. They can also be a good way to grow wealth over time, as investors can reinvest their dividends and earn a return on their investment.

However, it is important to remember that dividends are not guaranteed. Companies can cut their dividends if they are experiencing financial constrains.

If you are looking for a steady flow of passive income, dividends might be a great option for you. 

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