One of the most compelling reasons for you to invest is the prospect of not having to work your entire life! Bottom line, there are only two ways to make money: by working and/or by having your assets work for you.
If you keep your money in your back pocket instead of investing it, your money doesn't work for you and you will never have more money than what you save. By investing your money, you are getting your money to generate more money by earning interest on what you put away or by buying and selling assets that increase in value.
It really doesn't matter how you do it. Whether you invest in stocks, bonds, mutual funds, options and futures, precious metals, real estate, your own small business, or any combination thereof, the objective is the same: to make investments that will generate more cash for you in the future. As they say, "Money isn't everything, but happiness alone can't keep out the rain."
Whether your goal is to send your kids to college or to retire on a yacht in the Mediterranean, investing is essential to getting you where you want to be.
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How does a person gain from an investment?
There are two main ways in which a person gains from an investment. The first is by capital gains, the difference between the purchase price and the sale price of an investment. The second is investment income, the money paid to the holder of the investment by the issuer of the investment. Depending on the type of investment, the source or mix of the total gain will differ. And in some cases, these different sources are taxed at different rates, so it is important to be aware of each.
All stocks can generate a capital gain as the price of a stock is constantly changing in the market. This allows you to potentially sell for a higher price than what you bought the stock for originally. Some stocks also generate income gain through the payment of dividends paid out by a company from its earnings. For example, say that you bought a stock for $10 and the company pays off an annual dividend of $.50, and after two years of holding the stock you sell it for $15. Your capital gain is 50% ($5/$10) and your income gain is 10% ($1/$10) for a total gain of 60% ($6/$10).
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