Buy and hold - Share Price, Dividends and Capital Gains/Losses

Hi Lee-Anne. This is a relatively common question and not intuitive at first.

Question 1: The thing is, price ‘per share’ and comparing investments this way really isn’t very helpful. It’s like buying a $10 pizza and cutting it into 10 slices worth $1 each, or 5 bigger slices that cost $2 each. The $1 slices aren’t better value, they’re just cut up more than the others. Shares are a bit like that.

Now, one key different as you’ve pointed out is with reinvesting dividends. But again this isn’t really an issue because we can always use whatever dividends we get and put it toweards our next purchase. So we aren’t exactly missing out even though it might not be enough for a whole share. Plus, remember this is only a very short-term thing as after an other few purchases, then each dividend will be enough for a whole share.

Another way of looking at it is our money is earning returns in percentages, not in dollars. So it makes no sense to think the smallest penny stock will give us a thousand times better returns because we can buy so many shares for our money. It just doesn’t work like that.

Question 2: Capital gains and losses for tax purposes don’t really matter much in the short term if an investor is not selling their shares. But that doesn’t mean the actual return isn’t important. Of course, we want our investments to have capital growth over time, rather than capital losses. It’s a sign of a good, sustainable, long term investment. So it’s also not a great idea to ignore this completely, especially because some extremely high yielding investments can be a trap that lure in novice investors. Our whole return should be considered, dividends and capital gains. Some people prefer more of one or the other, but they’re both important.

Hope these answers make sense and help clear up some of the issues :)

In addition to what Dave said (Also ❤️ we love Strong Money) – If investing were an ice cream flavour it would be vanilla no sprinkles – boring and plane – (which is great for those who like vallina!) History shows the market goes up over the long term, it might not always be smooth sailing and defs not a straight upward line (that’s why any money you have for short term goals always stays in cash!) But even when you look at our history over the last 100 years, there’s been World Wars, Pandemics, Financial Crisis but the ASX and S+P index has always gone up….

So if you think that we as humans are going to keep innovating, creating, buying, selling and building new products and services then long term investing buying and holding will be for you! Also benefits of buying and holding is you pay less capital gains tax! You get a little tax discount from the gov if you hold on to a stock for longer than a year!

Don’t search for the needle in a haystack buy the whole haystack (whch is looks like you are doing)!