How does an investor make money from an investment? If you are like most people who invest in stocks and shares there is a certain process that you go through in order to see your investment grow. So how does this process work?
So how does an investor make money from an investment you want to know, If you are like most people who invest in stocks and shares there is a certain process that you go through in order to see your investment grow. So how does this process work?
How Does An Investor Make Money From An Investment
To begin with let's define stock. Stocks are a representation of ownership in a company. When you invest in a stock you are essentially buying a small piece of a company. It represents your claim to the assets, income and profit of the company.
When the company makes a profit it gives you a dividend and you are entitled to a share of that profit as well.
If the company makes a loss it is down-graded and your share of the profit is down-graded as well. This process is repeated over time and you can see how important your stock is to your portfolio.
If your share of the company's assets is worth 100$ and the asset is worth 100$ then your stock value is 100$.
If the company loses money the value of your stock decreases. If your stock is worth 100$ and the asset is worth 90$ then your stock value is 90$.
How does an investor make money from an investment? The process is called equity and it is done through dividends. If the company makes a profit they give out dividends. How these are divided up is up to the company.
If the company has good assets then it can be worth many times more than its stock. The company can sell these assets and divide the profits amongst the shareholders. If the company has poor assets the company can sell these assets and distribute the profits to the shareholders.
It really is down to the company how they divide up the dividend among the shareholders.
This is how you make money from an investment and how a company makes profits.
Purchase Price And Market Price
So in order to begin to see how this process works a simple example of how it works is to explain how you can gain more money from a home.
If you buy a home for 100$ you will gain 100$ of equity (the difference between the purchase price and the market price).
You can then spend this 100$ to paint the walls, hire someone to help in the garden or hire someone to mow the lawn and add value to the property.
What you are doing is investing in the home. It represents that you trust the company and that they will give you something back in return.
You are trusting that they have good assets and will turn that investment into profit in the long term. If the company is a good one then you will be able to see it gain in value in the future as its asset value increases.
The dividends are a sign of how much confidence the company has in their asset. If a company does not pay dividends it is saying that they are not confident of the asset they have created gaining in value in the future. The company is betting that the asset will be profitable.
If the company is good and has good assets then they should be able to make that profit on their investment. If the company has poor assets then the company will be able to turn that asset into profit.
It is really down to the company how much they want to put into the dividend, the amount they are comfortable losing, the amount they are comfortable making as earnings and the type of company they are.
If a company is new and has poor assets it will be prudent for them to pay out more in dividends to build up its reputation and credibility.
Asset Generating Income
The best companies that I have invested in have paid out a healthy dividend in the past few years and have a track record of paying out dividends in the future.
A company that is paying out a dividend will always have that asset generating income in the future.
They are simply showing that they are confident of their asset.
Investing in the Stock Market can be a tricky business sometimes.
You have to pay attention to what your managers are saying in the Boardroom and what the company is doing on the ground. It is always possible that the company could do badly in the future, however, you want to put that into context.
If a company is paying out a massive dividend, then you know that management is confident about the future and want to reward themselves with your money.
This is a sign of a solid company and you want to go with the company that pays out the dividend and not the company with a poor asset.
Key To Investing
How does an investor make money from an investment, The key to investing in the Stock Market is you need to be confident in the company you are investing in. Paying attention to the company dividend and track record is a start.
Next, you want to find a company that is solid. The dividend means nothing if the company has poor assets behind it.
A company that pays out dividends is another sign of solidity. After reading How Does An Investor Make Money From An Investment, Do yourself a favour and put this information to work and you will be well on your way to investing successfully.