When you buy stocks, you have two ways to make money. You can make money through dividends that the company pays for each share you own. For example, they might pay 25 cents per share each quarter. Dividends are not guaranteed, though.
Capital gains are another way to profit from stock purchases. You buy the stock at one price and at a future time, whether it’s in an hour or in 20 years, you sell it for a higher price. After you take the difference, the amount you sold it for over the amount you paid is a capital gain.
When investors purchase stock, they are doing it in hopes of making capital gains. Those in retirement usually look for dividend paying stock because it is a stable source of income. Otherwise, dividends are just a bonus to the investment.
In order to make capital gains, the stock price has to go up. The stock price can go up or down. It varies from day to day. How can you know it will go up and how exactly does it change?
Stock prices are affected just as the price of anything else changes. It is purely economics. Try to think back to your high school economics class when you learned about supply and demand.
It’s all based on whether supply and/or demand go up or down and buy how much. An increase in supply will lower the price whereas an increase in demand will increase the price.
The price of a stock will go up if there are more people wanting to buy than willing to sell. The price of a stock will go down if there are more people wanting to sell than there are willing to buy.
Once you understand supply and demand, you can understand how to make capital gains. You should try to purchase stocks that you feel will be a very popular buy in the future.
