Why invest in something that does not yield a return? Why entrust something with your money that will bring about a loss? Investors are particularly interested in one thing and one thing only. And that is, returns on their investments.

However, before we divulge and dissect the degree of returns on any given investment, one must first understand that returns on investments are not guaranteed.

More importantly, returns are mainly dependent on the investor’s risk appetite. This speaks to whether you are a very conservative investor who plays it safe and fears any degree of loss, to the extreme of being very aggressive — which means taking large risks in the hope of making large gains. Risk appetite will be the sound basis for how great a return you expect on your investment, and how often.

Returns on stocks may be derived from either dividend payments or through sales at a higher price than purchased.

If you are a conservative investor, then dividend-paying stocks would mostly suit your risk appetite. Not all stocks provide dividend payments, but there are plenty that pay dividends on a monthly, quarterly, semi-annual or annual basis.

If you are more of a risky investor, then you would be more interested in those stocks that are considered to be undervalued presently, and based on market information and speculations, prices should make an abnormal increase, thus yielding big returns when the investor decides to sell.

One must be mindful, however, that returns are not generated overnight, and tremendous returns aren’t derived on your investment portfolio in a short time span. Typically, it is advised not to withdraw from your investment portfolio before one year has passed, in order to maximise the returns yielded on your portfolio.

Another way to maximise on your returns is the very structure of your portfolio. Besides having a diverse portfolio with stocks in different industries, it helps if you have both dividend-paying stocks and capital preservation stocks. This will give the investor more than one way to gain on their investment. When they receive dividend payments, the investor can opt to withdraw the funds received without touching the initial investment, or leave the funds earned as additional funds to be reinvested, hence growing the portfolio.

Making a rash decision to sell immediately to prevent further losses, without first understanding why the price fell, may negatively affect the overall returns on your portfolio.

One such example is the Apple stock, NASDAQ: AAPL. On May 22, 2015 the stock was trading at US$132.54. One year later, on May 13, 2016, the same stock was trading at US$90.52. At this point the investor would stand to lose US$42.02 per share if they had opted to sell. On August 18, 2017 the stock closed at US$157.50, giving the investor a gain of US$24.96 per share. If the investor had sold it in 2016 they would have forfeited the gains derived in 2017 and would have made a loss on their initial investment.

The best way to gain through stocks is generally to invest in companies that are financially strong. Companies with sound financial foundations are capable of maintaining longevity and are more receptive to growth or innovations.

To garner returns on your portfolio, one must always play their cards right. It begins from knowing which stocks to invest in, knowing how long to hold, and knowing when to sell. Market information is always accessible, and investors are always encouraged to fully utilise this information. Returns are extremely important in any investment, therefore, one should always be knowledgeable about the stocks they invest in.

Shawn Martin is the reconciliation officer at Stocks & Securities Ltd