Round 8

Return on investments

The main reason for making an investment in a growth asset is because you are seeking a return on your investment. As has already been shown in this book, one of the great advantages of both property and shares is that you can create wealth through two types of return: income and capital growth.

Income

The income from shares is called a dividend. This is basically your share of the profits from the company, which, as a part-owner of the company, you are entitled to receive. Dividends are generally paid every six months to shareholders.

Let’s imagine you invested in a company called Levendy Lemonade Company and it made an annual profit of $1 000 000. Let’s also assume that Levendy Lemonade issued 10 000 000 shares and you bought 20 000 of them. If the profits are to be split evenly, each share would attract $0.10 profit ($1 000 000 profit ÷ 10 000 000 shares). As you own 20 000 Levendy Lemonade shares, your total income from dividends would be $2000 (20 000 shares × $0.10).

The income from property is called rent. If you have a tenant in your investment property, you are entitled to the payment of rent from them. This is money they pay you, the owner, for the privilege of occupying your property. Rent is generally paid weekly, fortnightly or monthly. If you owned a property and the tenant paid you rent of $385 per week, this would equate to an annual rental ...

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