What To Remember When Investing For Capital Returns In Canada
One common goal of investing is to get returns. There are two major ways one might realize investment returns. One of them is Capital Appreciation and the other is Income. Although many Canadians actually invest for capital appreciation, most of us don’t know what it means.
Capital appreciation refers to the profit you gain due to a rise in the price or value of what you have invested in. This means that if you bought 10 shares each at the price of $8 (total of $80) and two years later, those shares are selling at $10 (total of $100), you have a capital appreciation of $20.
However, if those shares paid a dividend of $2 each yearly, you would have had an income of $40 {2(2*10)} over that 2 year period. This in total means that you have made a total of $60 from your shares in 2 years.
Capital appreciation is usually the investment objective of most if not all mutual funds, and of many fixed assets. Some things to always remember when investing for capital appreciation include:
#1. Risk
The risk involved when investing for capital appreciation depends on how much you are willing to invest and what exactly you are investing in. However, always know that investing for capital appreciation can be generally risky especially when you lack information such as how value of your investment rises and how what you are investing in works. In addition, the increase or decrease in value of your shares, bonds or even land is most times not in your hands. This means that you might have little or no control on whether you would gain or lose.
#2. It’s out of your Hands
With most capital gains investments, you have little or nothing to do apart from sitting and watching, it is a good type of investment for someone who doesn’t have the time to follow up on a small business or on tenants for example. Hence, investing mainly for capital returns is a convenient way of gaining money in the long run.
#3. Long term investment
Although there could be exceptions, investing mainly for capital appreciation many times means you would be investing for the long term. This is because you want the value of your asset to grow and many-a-times it takes time for the value to grow. Therefore investing for capital appreciation requires patience.
Conclusion
Investing for Capital Returns, like every type of investment, has both advantages and disadvantages; however, the circumstances and the individual investing determines how those advantages and disadvantages would affect investment returns. Therefore, before investing determine what goal would be most advantageous and feasible for you.
