How Does Stock Make Money?

While there is risk involved, the ultimate goal of investing is to make money. When you invest in stocks, your profits typically come in two forms:  cash dividends and/ or an increase in share price.

Cash Dividends

When you get cash dividends, a company has chosen to pay all shareholders some or all of its profits. Shareholders can take the cash and buy new sneakers, or they can reinvest the dividends by buying more shares of the company’s stock. This may not sound as fun as new sneakers, but over time you could buy a house with a walk-in shoe closet.

Increase in Share Prices

Lots of companies don’t pay dividends, but shareholders’ money can still grow exponentially if the value of the stock rises.

Of course, there’s no guarantee that the stock price will rise or the company will offer dividends. Just as the fine print always says, past performance is not indicative of future results.