Three Ways To Earn From The Stock Market

Investing in the stock market is one of the tried and tested ways to build wealth over time. Although earning from it may seem difficult at the start, it’s actually an easy-to-understand process once you get the hang of it.

In this article, we’ll cover three ways how you can earn from the stock market!

Capital appreciation

The easiest way to earn from the stock market is through capital appreciation. Basically, it goes hand-in-hand with the “buy low, sell high” principle.

If you’re thinking of buying shares of a certain stock, you shouldn’t buy at the time when you think it’s at its highest point. Instead, you buy when you feel like it’s about to get higher in the future. Once its value appreciates to your desired level, that’s when you sell it, thereby making a profit from the sale.

Let’s say you buy 10 shares for $100 each. After a couple of months or maybe even years, the stock’s value appreciates to $120 per share. If you sell your 10 shares for $120 per share, then you’ll be making a total of $200 from the sale. Do that over and over and you’ll see how you can earn money from the stock market.

Cash dividends

Another way to earn through the stock market is through dividends. The first kind is called cash dividends. True to its name, cash dividends refer to the cash earnings that many companies payout at least once a year.

If you own 100 shares of a stock and the company decides to pay out $1 per share, you’ll be receiving $100 simply for owning 100 shares. This will happen every time the company releases cash dividends, as long as you keep your shares of the stock. Once you sell your shares, you will no longer receive the dividends from the company.

Do keep in mind that not all companies give out dividends, cash or otherwise. If your goal is to earn passive income through dividends, make sure to pick a stock that already has a proven record of paying out cash dividends. You should also check which ones have the highest dividend yield, also known as the ratio of the dividend compared to the share price, to earn the most profit.

Stock dividends

The second kind of dividends is stock dividends. This is when companies give out additional shares of their stocks to shareholders, usually depending on how many shares each shareholder owns.

For example, if a company decides to give out 10% stock dividends and you own 100 shares, then you’ll be receiving 10 more shares in addition to the ones you already own. Whatever you decide to do to these shares will be your own choice.

Many investors view stock dividends to be worth more than cash dividends, as stock dividends still have the chance to appreciate in value over time. Then again, shareholders always have the freedom to hold onto their stock dividends or sell them for extra profit, thus converting them into cash.