![]() ![]() On the other hand, if the company isn't profitable or if investors are selling rather than buying its stock, your shares may be worth less than you paid for them. Strong demand-the result of many investors wanting to buy a particular stock-tends to result in an increase in a stock's share price. Investor demand typically reflects the prospects for the company's future performance. A company generally needs strong earnings to pay a dividend, and there needs to be investor demand for you to see capital gains. In either case, your fate as an investor depends on the fortunes of the company. In contrast, if you sell your stock for a lower price than you paid to buy it, you'll incur a capital loss. These profits are known as capital gains. When the price of a stock increases enough to recoup any trading fees, you can sell your shares at a profit. Stocks are bought and sold constantly throughout each trading day, and their prices change all the time. Stocks that pay a higher-than-average dividend are called "income stocks."Ģ. Investors seeking predictable income may turn to stocks that pay dividends. You can either take the dividends in cash or reinvest them to purchase more shares in the company. When companies are profitable, they can choose to distribute some of those earnings to shareholders by paying a dividend. There are two main ways to make money with stocks:ġ. Dividends. If the company does well and makes money from the products or services it sells, its stock price is likely to reflect that success. Your return on investment, or what you get back in relation to what you put in, depends on the success or failure of that company. When you invest in stock, you buy ownership shares in a company-also known as equity shares. Investing in stocks to meet a short-term financial goal can be risky because of stock price volatility.While stocks have historically outperformed bonds over the long term, stock prices fluctuate and can go down, sometimes quite dramatically.New investors may want to consider stock funds rather than individual stock picking as a way to cost-effectively diversify their stock investments.Stocks and stock funds, such as mutual funds and exchange-traded funds (ETFs), can be an important component of your portfolio. ![]() Stocks are also referred to as equities because they represent an ownership stake in a company. ![]()
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