By investing in shares, an investor participates directly in a company. Because the company's
business performance may vary, the share price can
be subject to severe fluctuations. In the trading world these fluctuations are termed
"volatility". Investing in
shares involves significant risk, because
shareholders can incur substantial price loss within a short space of time. On the other
hand, they can also generate substantial
yields.
The yield on shares (and of investments in general) is the total yield of an investment
expressed as a percentage of the invested capital.
The yield of a capital investment is comprised of the
dividend yield and the
price change within a certain period of time. This may be positive or negative.
For example, if you buy shares for CHF 10'000 and sell them a year later for
CHF 10'800 and in addition receive a dividend of CHF 500,
the total yield is CHF 1'300. This profit is measured against the original
investment, which in this case produces a total yield of 13%.
Financial theory assumes an average annual yield of 8% for shares.
The transaction costs
(fees, taxes etc.) of buying and selling and any applicable taxes on capital gains and income will reduce
the yield earned by an investment. More on fees under
Securities Transactions.
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