How do you treat investment income?

cloud_dog

King_Weasel wrote: »

If MS Money is no longer available and there are no other similar packages, is it such a problem to write your own in Excel or equivalent?

Its not the product that is in question merely how the change is presented and what info you are looking to understand from your investments.

Just to be clear I'm not saying one is wrong, merely if people want to see how that info is presented.

cloud_dog

bowlhead99 wrote: »

Imagine having 100 shares bought for £1 each and £100 total, which generally each pay 10p dividend each year and you reinvest them to buy a tenner's worth of new shares. This builds up over the years and at some point you will end up with 200 shares. By this point, with the company being successful and the effects of inflation etc, each share is paying a 15p dividend and in total your 200 shares pay you around the £30 range each year, which is a 30% return on the original amount invested, leaving you with the smug face.

By this point the 200 shares are now valued at £5 each, total value £1000. The share price growth seems to have flattened off and analyst consensus is it is not going to go up anytime soon. You've made a 10x return on your £100 so are pretty damn happy, and you consider your options.

Should you sell? You look at what else is on the market. You smile to yourself as you see that no companies or funds are yielding anywhere near 30%! Wow this is a solid investment. I'm an awesome stockpicker. Half of these shares were just from dividends and didn't cost me anything! I only paid £100 so 90% of this investment value is just free money! I love this stock. Even if it goes down, most of it was free and I'm happy to ride the ups and downs because I was told stocks are not a one way street. But most importantly I'm making 30% for doing nothing, and there's no investments out there yielding more than 10% at the moment! No way I'm selling this baby!

Clearly of course the £30 return on a £1000 investment is only a 3% yield and may well be beaten by a completely risk free cash ISA or national savings bond.

The 30% annual return on original investment is good for the ego but is really just a curiosity. It's the 1000 vs 100 historic total return which tells you whether it was a good performer in the past, and the 30 vs 1000 current yield which tells you what income it's really producing against other opportunities.

You are right in what you say but you are amalgamating three separate investment considerations which are or should be exclusive:

1. Viewing my income return as a percentage of my initial investment
2. Reviewing current yield of the stock against others/peers
3. Reviewing growth prospects

If you are an income investor then 3 is much less important than 2.

I suppose my point is that income derived from investments is the same as SP growth except they return it to you so you can make an appropriate decision on how you use that 'growth' return. But, certainly in MS Money it is (for all the valid reasons mentioned previously) treated differently.