Investing in the stock market can be extremely profitable and a great place to grow your wealth. There are 3 ways which investors can make money off of a stock that they own.
1. The Stock goes up
One way that stocks make money for investors is through appreciation. If you can buy a stock at $20 and sell it for $40 you have doubled your money. In general stocks tend to go up over the long term, which is why the idea of buy and hold has become so popular. But if you look for stocks that are both technically and fundamentally strong you are likely to make a higher return then the rest of the market.
2. Dividend Income
Another way which stocks make money for their investors is through something called a dividend. Dividends are basically monthly payments to investors from the company which are supposed to represent a percentage of the company’s earnings.
For example if stock XYZ pays off an annual dividend of 10% it means that for every $10 you invest into a company you should get $1 back from that investment every year. This can lead to a nice consistent cash flow over time and if you are able to invest enough money can even lead to a nice way to obtain financial freedom.
3. Selling Options
Another way to make money off of stock market investments is by selling options. These are just contracts which give the buyer the right to buy a stock at a specific price on or before a specific date. For example if you own stock XYZ and it is trading at $50 you can sell the $55 call option on it and make a premium from that, by doing so you actually risk getting called out of the position at $55.
So if the stock goes up to $56 or higher you would get called out and miss the potential profit. If the call option expires before the stock goes above the strike price, or in this case $55 it means you will keep the stock and the added premium from the option.
By selling an option you take on some additional risks, but the idea is that the option premium you take in might make it all worth it.
To get a list of high dividend paying stocks or for more information about the stock market visit Shaun’s site about investing into stocks
