A return on a share can be made up solely of the increase or decrease in the value of the share or also include a dividend. A value increase means that the price of the share has gone up relative to the price you paid for the share. It is entirely up to you to decide when you are happy with the possible value increase and want to sell the share. Needless to say, the price can also drop. When the price drops to below the price you paid, you have made a loss on your investment. Share prices tend to move up and down in waves, which we refer to as ‘stock market fluctuations’. This can be rather unnerving for a beginning investor. Investors who are trying to anticipate and take advantage of price fluctuations are speculating rather than investing.
Since prices are volatile, it is better to look at how prices develop over a longer period of time. When measured over a longer time span, price peaks and troughs will level out and only the general movement, i.e. the trend, will be important for the end result. Investing in shares for a longer period will increase your chances of generating returns. It is one way to spread the investment risk.
If you hold shares for longer, you will also receive more in dividends. A dividend is a portion of a company’s profit that is paid out to shareholders. When a company pays a dividend, they can do so in cash or by awarding additional shares, which is known as a ‘stock dividend’. How much you are paid in dividend on a share depends on how much profit the company made and what the company wants to do with that profit, i.e. distribute it to shareholders or reinvest it. Companies are not under an obligation to pay a dividend.
Read more about dividend