There's this part of stocks that I'm confused about...?

Question

How does one actually receive money through stocks? Is it due to the stock going up in value or due to the dividends the company gives out.

For example, on the Investopedia Simulator, I bought an Apple stock. It doesn't give out dividends so how would i receive money on it?

Answer 1

I am not a financial advisor - you should consult one if you want financial advice. Do not rely on the following as a guide to investing.

Dividends are the way that companies share part of their profits with their shareholders. They keep the rest of the profits to grow the business further.

If the company isn't giving dividends the only way to get money is to sell some or all of the holding. Please note that the buying price for a stock is higher than the selling price - this is known as the spread for stocks that sell readily the spread is relatively small. When only one price quoted this is normally the mid market price - the price halfway between the buying and selling price.

There are dealing fees to pay when buying or selling and there may be some tax to pay as well. So a share has to go up a reasonable amount to make back what it was bought for. Prices can drop as well rise so a loss is entirely possible, or even end up with shares that are worthless if the company gets into serious trouble.

A person should only invest money they can afford to lose, and make sure they have a decent amount of savings on deposit before going into riskier things.

Answer 2

You wait until you sell the stock (hopefully at a higher price than you bought it).

Answer 3

if the value increases you will sell it for more than you purchased it for.

Answer 4

One makes money in 2 ways from a stock:  

The first one is when the price goes up from where you bought it, and you sell it at the higher price.  That is called a CAPITAL GAIN.

The second way is when the stock declares dividends.  That is known as YIELD.  Bear in mind that the stock price usually goes down by the amount of the dividend on ex-div day ( but that's another whole learning subject ).

Of course, one has the risk of loss too, if the stock declines in price after you bought it.  If you then sell at the lower price, you have a loss, called a CAPITAL LOSS.