Two Ways Investors Make Money on Stocks

Capital Gains:
Capital gains are the profits earned from selling a stock at a higher price than the purchase price. This method relies on the price appreciation of stocks. For example, if you buy a stock for $50 and later sell it for $70, your capital gain is $20. The key here is that capital gains are realized when you sell the stock, and they depend on the market performance and the company's growth. Investors often track trends, analyze market data, and make strategic decisions to maximize their capital gains.

Dividends:
Dividends are periodic payments made by a company to its shareholders out of its profits. Companies that generate steady income may distribute a portion of their earnings as dividends. For instance, if you own 100 shares of a company that pays a $2 dividend per share, you would receive $200 in dividends. This method provides a regular income stream and can be particularly appealing for long-term investors seeking consistent returns. The amount and frequency of dividends vary based on the company's profitability and dividend policy.

By focusing on either capital gains or dividends—or a combination of both—investors can tailor their investment strategies to meet their financial goals. Understanding these methods helps investors make informed decisions and potentially increase their returns on investments.