You can make money in the stock market primarily in two ways:
- Dividends : Some companies distribute a portion of their profits to shareholders as dividends. You earn money either by receiving these dividend payments in cash or by reinvesting them to buy more shares. Stocks that pay regular dividends are often called "income stocks" and can provide predictable income
- Capital Gains : This occurs when you sell your stocks at a higher price than what you paid for them. Stock prices fluctuate based on the company's performance and market demand. If the stock price rises and you sell, you realize a profit called a capital gain. Conversely, selling at a lower price results in a capital loss
Additional key points for making money in stocks:
- Investing for the long term with a "buy and hold" strategy tends to be more successful. Staying invested allows your investments to grow over time and ride out market volatility
- Diversifying your investments through stock funds like index funds or ETFs can reduce risk and simplify investing, especially for beginners. These funds track a broad market index and spread risk across many companies
- Opening an investment account (brokerage account) is the first step to buying stocks. You can start with no minimum investment depending on the platform
In summary, you make money by either receiving dividends or selling stocks at a profit, ideally by investing consistently over time and diversifying your portfolio to manage risk
