2. Total return - Current income (rent, interest, and dividends) Various types of investments have different long-term rates of return. When you invest your money, you are taking a financial risk, which is the possibility that the investment will fail to produce the desired return (or, in the worst-case scenario, any return at all). For example, if you invest in a particular company's stock, the company could have a very good year and earn considerable profit. Or in an extreme case, the company could go bankrupt, causing investors to lose all of their invested money. Therefore, smart investing involves attempting to earn a positive total return, which is the income that an investment generates from a combination of current income and capital gains. is the money received while you own an investment. By contrast, is the increase in the value of an investment when you actually sell the investment. In general, there is a trade-off between capital gains and current income. Investments with high potential for capital gains often pay little current income, and investments that pay substantial current income generally have little to no potential for capital gains. Current Income There are many kinds of current income, including (the charge for borrowing money paid to the lender of the money) and (payment received for allowing someone else to use your real estate property). Another kind of current income is a dividend, which is a portion of a company's earnings that the firm pays out to its shareholders. For example, suppose that Cameron purchases 100 shares of Purple Pigeon Bird Seed Company stock at $40 per share, for an initial investment of $4,000. Over the next year, the company pays dividends totaling $6 per share. Compute the amount of cash dividends that Cameron receives as current income during the year: Number of Shares 100 shares Dividend Value per Share $6 per share Current Income from Dividends $