Investment Returns: What You Need to Know

When investing your money, it’s essential to understand the different aspects of investment returns. What is the interest rate? How often do dividends get paid out? What is the yield? These concepts can be confusing, but they are essential for intelligent investments. This blog post will discuss the different components of investment returns and how to measure them. We will also talk about cost basis requirements and benchmarks/indices. By understanding these concepts, you can make more informed investment decisions!

Components of Return

Return components can include interest, dividends, realized and unrealized gains, and return on capital. These can vary significantly depending on the type of investment you are making. For example, if you are investing in stocks or mutual funds, the returns will most likely be driven by market fluctuations and changes in stock prices. On the other hand, if you are investing in bonds or fixed-income products, your investment returns may be primarily driven by interest payments and coupon rates.

Dividend Payment Dates

Another critical concept to understand regarding investment returns is dividend payment dates. This includes things like record dates, ex-dividend dates, and payable dates – all of which can impact how much money you receive from an investment. Record dates, for example, indicate when a company’s shareholders need to own shares to qualify for dividend payments. On the other hand, ex-dividend dates are when a stock starts trading “ex-dividend,” meaning that buyers of the stock will not be entitled to the most recently declared dividend. Payable dates are the dates on which dividend payments are made.

Measuring Investment Returns

To measure your investment returns, you must understand yield, YTM (yield to maturity), YTC (yield to call), and total return. These different measures allow you to assess the performance of your investments in a more quantitative way. Yield, for example, is a measure of the income you receive from your investments and is typically expressed as a percentage. YTM and YTC calculate the return on a bond or other fixed-income product, usually measured in percentage points. Total return, meanwhile, includes the effects of both income and changes in the market value of your investments.

Cost Basis Requirements

Finally, it is vital to know cost-basis requirements when making investment decisions. This refers to the methodologies used for determining the price paid for an asset, which can affect tax liabilities and capital gains/losses.

Benchmarks and Indices

If you are preparing for the Series 7 exam or other financial exams, being familiar with benchmarks and indices is essential. These tools can help you evaluate how your investments compare to others in the market, allowing you to make more informed choices about where to invest your money. With the proper knowledge and tools, you can succeed in achieving your investment goals! These and other topics will be covered on the Series 7 exam. Achievable offers comprehensive Series 7 practice exam questions to prepare you for the Series 7 Exam. Sign up today to get started on your Series 7 preparation journey!