Definition of a Payout

by Investing School on May 2, 2011

One of the terms you hear frequently when discussing investing is “payout.” While it is expected that you make money on profitable investments, the term payout is a bit more specific. A payout is an anticipated or expected financial return. This may be given out over a period of time either in a percentage or in a real dollar amount.

The basic concept behind the payout is to provide an incentive for investors to purchase a particular product. While companies are by no means required to offer payouts, those that have passed the growth stage of development often do in order to attract additional investors. Payouts may also be referred to as dividends.

Payouts are very unusual when you invest in companies which are still growing aggressively. In this case the investor will make money not from dividends – rather, they will see profit through the increased value of their stock. Obviously, these profits will only be seen if the stock is sold at the right time.

Annuities are a particular sort of investment where payout is assumed. The money invested pays out over a specified period of time and the principal isn’t accessible. In general, though, these types of investments offer little to no growth and funds which were placed into that annuity prior to taxation will be taxed upon withdrawal.

For most investors who have time reinvesting, payouts is the best strategy. For those investors who have reached retirement age, payouts may be a portion of their income, but the potentially erratic nature of such funds makes them a poor choice for regular expenses.

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