Portfolio investment is a strategy that allow investors to minimize risk and maximize return to achieve perpetual financial freedom. When you are practicing portfolio investing, you can make money in 3 simple ways:
1. Dividends
As a portfolio investor, you can choose to receive your portfolio distribution paid out back to your portfolio as cash or reinvest them in purchasing more asset in the portfolio. Combinations of higher-growth companies tend to pay lower dividends.
Unless you need the income to live on (or it’s your time to enjoy the fruit), reinvest your distributions into buying more assets in the portfolio. If you do this outside of a retirement account, keep a record of those re-investments because you need to factor those additional purchases into the tax calculations that you make when you sell your investments.
2. Capital Gains Distributions
When a portfolio manager sells stocks for more than he paid, the resulting profits, known as capital gains, must be netted against losses and paid out to the fund’s shareholders. Just as with dividends, you can reinvest your capital gains distributions in your portfolio. This is how you can build a giant pool of assets for you to enjoy financial freedom.
3. Appreciation
The portfolio manager is not going to sell all the stocks that have gone up in value. Thus, the price per share of the portfolio pool increases to reflect the gains in its asset holdings. For you, these profits are on paper (unrealized gain) until you sell the investment and lock them in. Of course, if the backed stocks decline in value, the share price depreciates accordingly.
If you add together dividends, capital gains distributions, and appreciation, you arrive at the total return your portfolio from different tools. These features allow portfolio investment to be very strong as it does not depending on just 1 type of gain or earnings. This would be a very compatible and reliable way for you to plan your lifetime personal finance. Not only for you but also for the sake of your love ones.
