You can make money from common stock in two main ways:
1. Capital Gains
- Definition: This is the profit you make when you sell your shares for a higher price than you paid for them.
- Example: You buy 100 shares of Company A for $10 per share, spending $1,000 total. Later, you sell those shares for $15 per share, earning $1,500. Your capital gain is $500 ($1,500 - $1,000).
2. Dividends
- Definition: Some companies pay dividends to their shareholders as a way to share their profits. These are cash payments distributed to shareholders, usually on a quarterly basis.
- Example: Company B pays a dividend of $0.50 per share each quarter. If you own 100 shares of Company B, you would receive a dividend payment of $50 every quarter ($0.50 x 100 shares).
Practical Insights:
- Investing for the long term: Investing in common stock is typically considered a long-term strategy. While you can make money in the short term, it's generally best to hold your shares for an extended period to allow for potential growth and maximize your returns.
- Research is key: Before investing in any company, it's essential to research its financial performance, industry trends, and management team. This can help you make informed decisions about which companies to invest in and when to buy or sell their shares.
