How do I make money from stocks?
You make money in two ways:
- You sell when the price is higher than you paid.
Example: Let’s say you buy a stock when the price is $10 a share. A year later the price goes up to $11 and you sell. You will make $1 on each share you own, minus fees or taxes.
- You get dividends.
Example:
Let’s say you bought 100 common shares of a company at the start of the year. At the end of the year, you get a dividend of 25 cents a share. That means you made $25 in dividends that year (100 shares x 25 cents = $25). Some years, you may get a higher dividend. Some years, you may get a lower dividend, or no dividend at all.
Tip: Before you buy a stock, ask these questions: Is this stock’s price likely to rise over time? Does the company pay dividends often?
How do I lose money from stocks?
- You sell when the price is lower than you paid.
Example: Let’s say you buy a stock when the price is $10 a share. A year later, the price has dropped to $9. If you choose to sell then, you will lose $1 on each share you own. You’ll also have to pay fees for selling the stock.
Tip: You don’t really lose money on your stock investment until you sell. You may decide to hold on to the stock and hope that its price will rise. There’s no way to tell for sure if the price will rise again or how soon. It could even fall lower. As an investor, you have to decide when you should sell. Or, get help from a registered adviser.
- The company whose stock you own goes out of business.
This doesn’t happen often. But a company can go bankrupt if it can’t afford to pay its bills. Its stock will drop a lot in value and may even become worthless.
Remember: There is no sure thing in the stock market
For better results, learn as much as you can before you invest your hard-earned cash. You may also want to get professional advice.
