Beginner’s Guide: How Do Stocks Make Money?

If you are new to the stock market, you want to know how do stocks make money? This beginner’s guide will help you start investing the right way.

Are you interested in starting to invest in the stock market?

Fifty-four percent of Americans own stock either individually, or through a 401(k), mutual fund, or IRA account.

The stock market gives an investor the unique opportunity to own a portion of a company. It also allows that person to earn additional income in the form of increased value and/or the payment of dividends.

But to make the most of a stock ownership opportunity, you need to understand how investments work.

You may be asking, ‘How do stocks make money?’ Read on to learn more about how they do!

Research a Company

You may be wondering how to make money in the stock market for beginners. There is no perfect formula to do this.

You should start by researching the companies you are interested in purchasing stock in. 

Determine whether or not the company is publicly traded or not. A stock is publicly traded if it listed for sale for members of the general public somewhere like the New York Stock Exchange (NYSE). 

You should review the history of the stock – how it has performed in the past and the current (and future) expectations of the company. Ask yourself, ‘Is this company worth my hard earned money?’

Increased Value of Stock

Buying stock can be an intimidating prospect for even the most seasoned investor. 

After all, there is a certain level of “gambling” that is inherent with the purchase of every share of stock. That’s because even the “safest” stock is still one that is at risk of decreasing value.

Once you identify the company or companies you want to invest in, you should determine how much money you are willing to invest. Oftentimes, you can buy as little as one share of stock. 

Through your search, you may learn how to invest in water and the way it can help you earn a potential profit.

You can make money on a stock by buying at a low price and selling for a higher one. But to determine your true profit, you should take into consideration tax consequences and any trading fees you incur to buy or sell the stock.

Payment of Dividends

Many different stocks offer their owners some form of dividend payment.

But it’s important to remember that just because a stock is paying a dividend now does not mean that it will pay one in the future. The payment of dividends is something voted on by a company’s Board of Directors. 

A dividend is often contingent upon that vote and the earnings of that company in a given quarter or year. Dividends are usually paid quarterly or annually, depending on the company.

Dividends are a good way to make a stock market profit but you should not rely on this solely as you make your investment decision.

Wrapping Up: How Do Stocks Make Money

Investing in the stock market can be an effective way to build wealth outside of depositing money in a savings or checking account. You can also learn about new businesses and emerging trends in a specific industry.

After you answer the question, ‘How do stocks make money?’, you will have more of an appreciation for investing as a unique tool in personal finance.

Are you interested in learning more about how a business builds a successful model?

Check out our blog post on building business strategies for sustainability!

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