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How to ride out stock market volatility and make money from investing in shares

by , 16 July 2015

Many investors focus solely on making money in the stock market by buying low and selling high.

But by focusing on share prices alone, you miss out on making returns by another way.

So what should you do?

Read on to find out…

You have to focus on the dividends you gain from your investments

When investing in shares it’s all too easy to focus on what share prices are doing and not what you gain in dividends.

A dividend is a payment you may receive as a shareholder in a company, Dr David Eifrig in Daily Wealth explains. Companies tend to pay them out twice a year and it’s your share of a company’s profits.

Many investors don’t give enough weight to this form of income. But this is a mistake. Income is a vital part of your investment.

For example, you buy 100 shares in Company ABC that pays R10 a year in dividends. That’s an income of R1,000 a year. And you have the potential to make that income rise.

Dividends make up a large proportion of your returns

Dividends are a vital part of your investment returns and worth focusing on. Take the S&P 500. Since 1926, dividends account for 43% of the performance of stocks. So if you make 7% a year in shares, around 3% of that is from dividends.

The important thing about dividends is the difference time makes. If you reinvest your dividends and allow compounding to work its magic, you can grow your returns exponentially.

When investing in shares, dividends make a big difference to your overall return. As a part owner in a business, dividends are your share of the profits. This is why you shouldn’t focus entirely on just what share prices do, look at the bigger picture.

And a company that pays regular, growing dividends to its shareholders is a sign of a solid company that’s producing cash.

So there you have it. How to ride out stock market volatility and make money from investing in shares.

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How to ride out stock market volatility and make money from investing in shares
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