“How Do You Make Money Investing in Stocks?”





By Brett Sifling

07/31/2018

“How do you make money investing in stocks?”

So, you’re a first-time investor. Your parents or grandparents probably own stocks, but you’ve always wondered, how do stocks make you money?

I recently had the opportunity to help teach the investing module to Loyola Marymount University’s Save It Forward Initiative. The program is designed for high school students to provide the tools they need to reach financial freedom. If you’re a parent in the Southern California area, I strongly encourage you to send me an email and I can connect you to the program.

I began my own investing journey in high school and teaching reminded me of the burning question a lot of first time investors have, “How do you make money investing in stocks?”

Stocks are more than four or five letter symbols. They are corporations, and when you purchase a share, you’re now part owner of that company. There are two ways to make money from stocks: capital appreciation and dividends.

Capital Appreciation

When you buy a stock, you are now part owner of the assets that the corporation has. These assets have real value that can be derived in many different ways and analyst rarely agree. Every day when the market opens, buyers and sellers fight back and forth over what they think the price of a stock is worth. If you purchase the stock at $10 and then the market price moves up to $14.00, you’ve made $4 per share that you own. That is what we call, capital appreciation -- selling an asset for a market price more than your original purchase price.

Dividends

Now, when you own stock in companies that are profitable, they can choose to issue dividends to their shareholders. The most common form of a dividend is a cash payment, but they can also be paid out as additional stock. You can tell how much you will be paid by the dividend yield, which is the percentage that measures your cash payment as a percentage of the current market price. For example: Let’s say you own 100 shares of Apple, the dividend yield is 1.54% and the current market price is $200. You would get a 1.54% cash payment of $200, multiplied by 100 (amount of shares you own), bringing in a $308 cash dividend payment.

All in all, stocks are great for growth in your portfolio. By taking advantage of the capital appreciation and dividends of certain companies, you can build an asset base for your future. By owning stocks, you can build wealth and gain financial freedom. The trick is, owning the right ones. This is a lot harder than it sounds and you should always seek the help of an investment professional. We are here to help!