The Rules of Wealth, 3rd Edition

RULE 48

Understand what investing really means

Many investments have a twofold purpose. They generate income and they increase in value. In other words, if you invest a lump sum (this is known as capital) you get regular small payments of some kind and the actual value of the capital itself increases, i.e. the lump sum gets bigger.

Let’s suppose you invest in property. In an ideal world you should be able to rent it out, thus providing the regular small payments in the form of rental income, and the value of the property should go up also, so your capital increases in value over time.

Likewise shares should pay out dividends (generate income) and should be worth more than you bought them for when you come to sell some time later (increase in ...