Chapter five: How to make money in the stock market?
So you want to make easy money in the stock market, but don't know where to start, how to take action, or you're trying to figure out how other successful investors are making money. We'll look at the two easiest ways investors have been able to get rich by investing in the stock market. Best of all, you can do it also. The two common ways investors make money in the stock market are with capital gains and dividends.
Capital gains, explained. When you have your money invested in the stock market, the value of this asset goes up and down. When your money, also called your capital, increases in value, you have just received a capital gain, and when it decreases in value is called, you guessed I, a capital loss. As long as your money is invested in the stock market, it's unrealized. It only becomes realized once you sell your stocks. Let's look at an example. You decide to buy 100 Nike shares at around $65. Without factoring in trading fees, you ended up buying $6,500. This is also what your Nike stock capital is worth. A few days go by, and you decide to check on the stock's performance. You notice that the Nike stock price dropped, from $65 to $61, so, your capital also dropped in value, from $6,500 to $6,100, to be exact. You lost $400, which is your capital loss, but you thought about this chapter and remembered that this is an unrealized capital loss, because it is still parked in the stock market. You decide to wait it out, and after a few more days, the stock price increased back to $65, and you're happy that you're at breakeven point. After a few days, it hits $72. You have just experienced your first unrealized capital gain, and decide to share your Nike shares. You sell all your 100 shares at the current stock price of $72, so, you just received 7,200 in your cash account, transfer fees not accounted for. By selling, you turned your unrealized gain into a realized capital gain. 7,200 minus 6,500 equals $700. You just made a quick $700 without doing any physical labor. Now, you still have to pay taxes on your capital gains, depending on which type of investment account you are using, and which income tax bracket you are in. This quick explanation is how many day and swing traders, and even long-term investors, make money. They analyze stock charts by looking at indicators and patterns to decide when to buy and sell stocks. You made a quick $700 with 100 Nike, but if you bought 1,000 shares, your profit would have been $7,000. If you have the money to spare, don't like taking any risk, and have idle time on your hands, you can make a pretty penny quickly by investing in the very risky penny stocks out there. Dividends. The second most common method investors make money is with dividends they received from dividend-paying stocks. Let's stick with the Nike stock example. So you bought 100 shares at $65, but instead of selling for a capital gain, you decided to hold on to those stocks for one year. Nike has made four dividend payments of 18 cents per share for the year. With your 100 shares, you received $18 for every single quarter, or $72 total. The great thing about dividends is that these payments get deposited into your cash account, or you can also reinvest them to buy more whole or fractional shares. These whole or fractional shares also end up paying you dividends. There are also disadvantages to dividends. The money you receive from dividends is mostly a lot lower than you would receive from a capital gain. Dividends are also a long-term strategy. They are not get rich quick. Also, many companies are flaky with their dividend payments. Some constantly cut their dividend payments, and others completely halt paying dividends during times of financial hardship. There are also companies that never increase their dividend payments, or increase it after years of paying the same dividend amount. However, I like dividend-paying stocks, but only from specific companies. I do fundamental research to see which companies are worth buying, and I also analyzed the dividend payment history, especially during times of economic turmoil, because companies that can still pay an increase in dividend during a stock market crash are companies to keep an eye on.
Let's look at five dividend-paying stocks you should have on your watch list.
Number one, Nike. This athletic apparel retailer sells its products worldwide, with a focus specifically on athletes. However, the brand is still so immensely popular that even non-athletic types also wear Nike apparel. The biggest moneymakers are their footwear products, with their flagship Jordan brand always selling like hotcakes.
Number two, The Pepsi Company. Many consumers think that The Pepsi Company only owns the beverage, but they also own popular brands, such as Frito-Lay and Quaker foods. The Pepsi Company has done a great job diversifying their portfolio of brands with high-quality consumer goods.
Number three, Coca-Cola. This company, which is one of the most recognized brands worldwide, owns many additional brands besides the iconic Coke brand, like Minute Maid, Vitamin Water and Powerade.
Number four, Realty Income. This real estate investment trust, REIT, has tenants such as Walgreens, FedEx, and LA Fitness. They operate nationwide, and are also diversified across many different industries. They also pay a monthly dividend, which makes them a favorite dividend company for many investors.
Number five, Fastenal. This fairly boring company sells industrial and construction supplies Even though Fastenal is not in an exciting industry as technology, it makes up for it by its sheer consistency and delivering value to both its customers and shareholders.
