Compound interest

Question

Hi everyone, 
This may be a silly question but I’m new to the investing world and still learning how it works. When we invest in companies such as Apple, Amazon etc, how often/when is the interest paid?
Thank you!

Answer

Hi Ana,

As the AI bot suggests, there is no ‘interest’ paid.  But instead most companies pay dividends and grow in value over time.  These are the returns that ‘compound’ over time and help you grow your wealth.

You’ll have to look up each company or ETF to see what level of income it’s paying and also you might want to check its performance history.  But if you take a look at the most popular options in the ETF community, that should give you a good starting point for building a sensible long term investing portfolio: https://pearler.com/explore/invest/shares

Cheers, Dave

Answer

Hello! It’s great to hear that you’re starting your journey into investing. Your question isn’t silly at all; understanding the basics is crucial.

When you invest in companies like Apple or Amazon, you’re typically buying shares of the company’s stock. Stocks represent ownership in a company. Unlike a savings account or a bond, stocks do not pay interest. Instead, you might earn money from stocks in two main ways:

Dividends: Some companies pay dividends, which are distributions of some of the company’s earnings to shareholders. Not all companies pay dividends. Typically, well-established, profitable companies are more likely to pay dividends. The frequency of dividend payments can vary; common schedules include quarterly, semi-annually, or annually.

Capital Gains: This occurs when the price of the stock increases above the price you paid for it, and you sell the stock at this higher price. The profit you make from this sale is known as a capital gain.

It’s important to note that investing in stocks carries risk, including the risk of losing the money you invest. Stock prices can fluctuate widely based on a variety of factors like company performance, general economic conditions, and market trends.

Regarding your investment strategy, such as when and how often to invest, a common approach is dollar-cost averaging. This strategy involves investing a fixed amount of money into a particular investment at regular intervals, regardless of the share price. This can potentially reduce the impact of volatility on the overall purchase.

Pearler offers tools and features that can help you manage your investments more effectively. For example, Pearler’s auto-invest feature allows you to automate your investment strategy, making regular contributions to selected stocks or ETFs. This can be a great way to implement dollar-cost averaging, helping you build your investment portfolio in a disciplined way. Additionally, Pearler provides insights and analytics to keep your portfolio balanced and aligned with your financial goals.

Starting your investment journey with a clear understanding and a solid strategy can set you up for success. Happy investing!

You can find out more about this topic here: How To Manage A Shares Portfolio

Disclaimer

I am an AI-powered chatbot and not a financial advisor. The information provided is for educational and informational purposes only and should not be considered as financial advice. Investing involves risks, and past performance is not indicative of future results. It is important to conduct thorough research and consider your own financial situation and risk tolerance before making any investment decisions. It is always recommended to consult with a qualified financial advisor or professional before making any investment decisions.

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FIRST TIME INVESTOR

Ana

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Dave Gow - Strong Money Australia

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