There are 2 main ways (on the investor end) that people make money with stocks and I decided to list them out for you below. Those ways are via appreciation/depreciation or by dividends.
Whether it’s directly or indirectly (though options, mutual funds, etc.) this is the money you make when the price of the stock goes up or down. If you buy a stock at 2 dollars and sell it when it goes up to 3 dollars, then you made a dollar. If you sell short a stock when it’s 3 dollars and then buy it when it goes to 2 dollars, you made a dollar.
Advantage of Appreciation/Depreciation
The potential gain from this is very large. In the past, there have been stocks that have appreciated many-fold. If you had bought Microsoft when it had its first IPO, you would have had a lot of appreciation on that asset. You would have had a great return.
Disadvantages of Appreciation/Depreciation
The first disadvantage is that the potential movement of the asset value is very large, and that movement might move in the wrong direction. You could lose all your money.
The second disadvantage is that it is entirely speculative. No one can say with any degree of certainty how a stock is going to perform in the future. It is a guess, which can be and often is wrong.
As a partial owner of a stock, you might receive dividends. Dividends are the payments made to you from the company that the stock is connected to. It is part of the profits that you are entitled to by being an owner. The company can choose either to pay you a dividend or reinvest the money back into the company.
Advantages of Dividends
Companies are very hesitant to lower their dividend as it is interpreted as a sign of weakness. So if they can afford to, they will keep paying their dividend. If the stock has a regular dividend, it does signify the company has some degree of financial stability and strength.
If the stock’s dividend is regular enough it can be valued the same way as a bond. Taking the present value of the cash flow is possible with a dividend stock but very difficult with a speculative stock. Also, just like a bond, a stable dividend stock can be considered a fixed income source.
Disadvantages of Dividends
The potential gains are severely limited in comparison to speculative stocks. The returns from a dividend are often small so it is not the path to quick wealth.
There are no requirements that companies have to pay a dividend. If the company starts to financially struggle, the company can cut the dividend.
|Rate||Assets Under Management|
|1.00%||Between $125,000 and $750,000|
|.85%||Between $750,000 and $1,250,000|
|.80%||Between $1,250,000 and $1,750,000|
|.75%||Between $1,750,000 and $2,500,000|
|.70%||Between $2,500,000 and $3,250,000|
|.65%||Between $3,250,000 and $4,250,000|
A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.
As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.
If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.
Questions for the comments
Did my explanation make sense? Do you agree or disagree with what I said?