One reason you may invest in the stock market is to earn money. If you are investing in stocks for the first time, it may be unclear how exactly you get a profit. Do you just put money in and magically get more money out? There are two major ways for investors to make a profit; capital gains and dividends.
Capital is defined as the (initial) amount of money that people invest in, in this case, stocks. Therefore, a capital “gain “would mean that there is some sort of increase happening. Capital gain is the profit that investors can make when that initial investment into stock is resold for a higher price than what they bought! That is why it is very important to take the time in researching the stocks that you plan to invest in; companies that are doing well economically are bound to have an increase in stock value, which investors can take advantage of. Just keep in mind that investors do not make a profit until they sell that stock; they just hold on to it and wait for the value to increase.
Dividends are more of an income type of system. Companies will distribute excess profits to shareholders as a kind of “reward.” Dividends are considered income because it is given at a scheduled basis, which can be monthly, yearly, etc. There is usually a dividend rate based on how many stocks someone owns. For example, it can be something like 20 cents monthly dividend pay per stock owned, and someone who owns 100 stocks in that company would get an income of $20 monthly (before tax).
You may earn money in different ways for different companies, as some may be better for realizing capital gains while others may provide dividend payments. Once again, research the company you plan to invest in. Being careful with your investments is the first crucial step to making a solid profit off them. Remember to be patient, be cautious, and have fun with stocks!
Written by Brian Caballo