3. How do investments make money for you?
There are three main ways in which investments make money: Interest, Dividends, and Capital Gains:
- Interests (DK: Renter): Comes from investing in such products as savings accounts or bonds. The return is typically a fixed amount paid at regular intervals.
- Dividends (DK: Udbytte): When you buy shares in a company, you may earn dividends, which are a portion of the company’s profits distributed to shareholders. Not all companies offer dividends, and those that do may not do so regularly.
- Capital Gains: (DK: Kapitalindkomst) These are earned when the price of an asset like stocks, property, or other investments increases over time. You earn the profit when you sell the asset for more than what you paid for it.
Moreover, there is something called Compounding. Compounding is the process when the earnings from your investments are added to your initial investment, creating a larger sum that grows even faster. To fully benefit from compounding, it is important to start investing as early as possible. Products such as Stocks, ETFs, and Danish Investment Funds that utilize compounding are often referred to as "Accumulating" products.