Stocks, company shares, equities. These investments go by a few different names and are a fundamental part of many investors plans to build wealth. But that doesnt mean theyre easily understood. To help get you up to speed, were here to share (get it?) some knowledge about stocks and how different types could be useful to you as an investor.
Stocks are a type of security that gives stockholders a share of ownership in a company. There may also be times when shareholders can vote on important company decisions, depending on the type of stock.
It’s not impossible to make money with stocks, but it’s also not quite like picking the winning lottery numbers. I’ve spent years studying the stock market, and I can tell you that there is no surefire way to get rich. However, there are some pretty good strategies that can help you get rich over time.
Let’s face it – we all want to know how to turn our hard-earned money into MORE money, right? Well, stocks are one of the best vehicles for doing exactly that With average returns of about 10% annually (before inflation) over the long term, the stock market has historically been a powerful wealth-building tool
But here’s the catch – making money in stocks usually isn’t an overnight success story It takes patience, strategy, and a bit of knowledge. So let’s dive into the actual, practical ways you can make money from stocks without needing an economics degree or a Wall Street office
The 6 Proven Strategies to Make Money from Stocks
1. Open an Investment Account First (Duh, But Important!)
Before you can even think about making money from stocks, you need a place to buy and hold them. This is your investment account or brokerage account.
Opening an investment account is pretty similar to setting up a bank account. You’ll need to:
- Choose a broker (companies like Charles Schwab, Public, or Coinbase)
- Complete an application
- Fund your account through a bank transfer
The type of account matters too:
Types of Investment Accounts:
- 401(k) – A workplace retirement account (often with employer match – free money!)
- Roth or Traditional IRA – Individual retirement accounts with tax benefits
- Standard brokerage account – Regular investment account without special tax status
Most financial experts say that you should first max out your 401(k) match (free money!), then put money into an IRA to get tax breaks, and finally use a regular brokerage account to make more investments.
2. Index Funds: The Easy Button for Stock Investing
Let me tell ya – individual stocks are cool and all, but for most of us, index funds are where it’s at. These are basically collections of dozens or hundreds of stocks all bundled together that mirror a market index, like the S&P 500.
The beauty of index funds or exchange-traded funds (ETFs) is that you don’t need to know the details of each company. Instead, you’re investing in lots of stocks at once, which helps spread your risk.
Why this rocks:
- Less research needed
- Instant diversification
- Generally lower fees
- Historically solid returns
Could you really make more money by picking individual stocks that will go up? But you could also lose more. A lot of professional money managers have been found to not consistently beat index funds over the long term.
3. Embrace the “Buy and Hold” Strategy (Patience Pays Off)
The secret sauce to making money in stocks? Staying invested for the long haul.
If you want to invest in stocks that will grow over time, the “buy and hold” strategy is exactly what it sounds like: you buy them and keep them for years. Not days. Not weeks. YEARS.
Here’s the thing that many beginners don’t realize: Time in the market beats timing the market. Your length of time invested is the strongest predictor of your total performance.
Many investors fail to earn that sweet 10% average annual return simply because they move in and out of the market at the wrong times. They get spooked when prices drop or greedy when they rise, which is exactly the opposite of what works!
The best-performing stocks increase their profits over time, and as investors continue buying the stock, that drives the price up even higher. That higher price equals profits for you.
4. Don’t Sleep on Dividend-Paying Stocks
Dividends are like getting paid just for owning a stock. No kidding!
Some companies share a portion of their profits with shareholders through regular cash payments called dividends. This is basically the company saying “thanks for believing in us – here’s some cash.”
Dividend yields typically range from under 1% to over 5%, with many established companies paying in the 1-3% range. That might not sound like much, but consider this:
- You get paid regardless of whether the stock price goes up or down
- You can reinvest dividends to buy more shares (compounding your returns)
- Dividend payments can increase over time
If you’re trading stocks frequently, you’ll miss out on dividends since you won’t own the stock long enough to collect the payouts. There are also dividend ETFs available if you want the power of dividends with more diversification.
Many investors set up automatic dividend reinvestment, which means your dividends automatically purchase more shares of the stock or ETF. This creates a powerful compounding effect over time.
5. Explore Different Types of Stocks and Industries
If you’re interested in individual stocks rather than just funds, it helps to understand the different types and how they might fit your goals.
Growth Stocks
- Shares of companies expected to grow sales/earnings faster than average
- Usually smaller, newer companies with big potential but maybe not big profits yet
- Generally don’t pay dividends (they reinvest in themselves)
- Higher risk, potentially higher reward
- Examples might include many tech companies
Value Stocks
- Companies that trade below what investors think they’re really worth
- Often larger, established companies with solid financial histories
- Some pay dividends
- Generally considered less risky than growth stocks
- Examples might include some financial or consumer staples companies
Income Stocks
- Focus is on generating income through dividends
- Stable companies with consistent cash flow
- Share price appreciation is secondary
- Often utilities, real estate investment trusts, or established consumer goods companies
You might also want to explore emerging industries like AI, renewable energy, or established sectors like commodities. Just remember to do your homework first. One way to reduce risk is to invest in industry ETFs rather than individual stocks within those sectors.
6. Use Dollar-Cost Averaging (The Smart Way to Invest)
The stock market is weird – it’s literally the only market where when things go on sale, everybody panics instead of buying more! When prices drop, investors get scared and often sell. When prices rise, they rush to buy. This is exactly backwards from how you make money.
To avoid this psychological trap, try dollar-cost averaging. With this approach, you invest a fixed amount of money at regular intervals, regardless of what the market is doing.
How dollar-cost averaging works:
- You invest, say, $100 every month
- When prices are low, your $100 buys more shares
- When prices are high, your $100 buys fewer shares
- Over time, you end up with an average purchase price that often works in your favor
The beauty is you’re not trying to time the market. You’re just consistently investing, which takes the emotion out of it.
Actually, if you have a 401(k) at work where money comes out of each paycheck and goes into investments, you’re already doing dollar-cost averaging! You can set up similar automatic investments with most brokerages.
How Do Stocks Actually Make You Money?
Let’s break down the actual ways stocks put cash in your pocket:
1. Share Price Appreciation
This is the most obvious way stocks make money. You buy a stock at one price, and hopefully sell it later at a higher price. The difference is your profit (minus any fees or taxes).
For example, if you bought 10 shares of a stock at $50 per share ($500 total) and later sold them at $70 per share ($700 total), you’d make a $200 profit (before taxes and fees).
The increase happens when:
- The company performs well financially
- More investors want to own the stock
- The overall market or industry rises
- The company announces positive news
2. Dividends
As I mentioned earlier, dividends are regular payments some companies make to shareholders. Not all companies pay dividends, but those that do typically distribute them quarterly.
For example, if you own 100 shares of a stock trading at $50 (worth $5,000) with a 2% dividend yield, you’d receive about $100 per year in dividend payments (usually split into quarterly payments of $25).
3. Compound Growth Over Time
This is where the real magic happens. When you reinvest your dividends and your investment grows year after year, you start earning returns on your returns. This snowball effect can be incredibly powerful over decades.
For instance, a $10,000 investment growing at 10% annually would be worth:
- $16,105 after 5 years
- $25,937 after 10 years
- $67,275 after 20 years
- $174,494 after 30 years
That’s the power of compounding, and it’s why time in the market is so important!
Common Mistakes to Avoid When Trying to Make Money from Stocks
I’ve made my fair share of investing blunders, so learn from my mistakes:
- Trying to time the market – Even professionals usually can’t do this successfully
- Checking your investments too frequently – This leads to emotional decisions
- Paying too much in fees – High expense ratios eat into your returns
- Not diversifying enough – Putting all your money in one or two stocks is super risky
- Investing money you’ll need soon – Only invest money you won’t need for at least 5+ years
- Following hot tips – By the time something’s a “hot tip,” the opportunity is usually gone
- Letting emotions drive decisions – Fear and greed are terrible investment advisors
Final Thoughts: Patience Is the Real Secret
Look, I know that “get rich slowly” isn’t the sexiest advice. We all want to find that one magical stock that turns $1,000 into $1 million overnight. But the reality is that consistent, patient investing over time is the most reliable path to building wealth through stocks.
The stock market’s average return of around 10% annually before inflation isn’t guaranteed for any single year—some years might see 20% gains, others might see 20% losses. But over long periods, these tend to average out to positive returns that significantly outpace inflation and other investment types like bonds or savings accounts.
Remember, making money in stocks isn’t about getting lucky once—it’s about being smart consistently. Start with an investment account, consider index funds for simplicity, use a buy-and-hold strategy, explore dividend-paying stocks, understand different stock types, and use dollar-cost averaging to remove emotion from the equation.
If you follow these principles and avoid the common mistakes, you’ll be well on your way to building wealth through stocks. Just don’t expect to quit your job next month!
How to buy stocks
These days, you can buy stocks by opening a brokerage (or regular investment) account online. Picking a broker is an important decision that you shouldnt take lightly. You may want a firm that wont hold you back with fees, hidden costs, or a lack of investment availability. For more information, check out our guide on where to open a trading account.
Once you have an account, your next move is to research stocks you may want to buy. Check out these 4 steps to picking your investments. And remember: You dont have to stick with buying individual shares. Mutual funds and exchange-traded funds (ETFs) can provide easy access to hundreds of different stocks at once, providing broad market exposure.
How do stocks work?
Companies issue stock to raise funds to operate their businesses. This cash infusion can help companies in a variety of ways, such as helping to pay off existing debt and funding growth plans they cant—or dont want to—finance with new loans.
Stockholders, or shareholders, can primarily make money in 2 ways:
- Share appreciation. As a company does well financially or becomes more popular, the price of its stock may go up. This lets investors get more money when they sell their shares to other investors.
- Dividends. Some businesses may choose to give investors a piece of their profits in the form of cash payments known as dividends. Many well-known companies report their dividend yield as a percentage, which can be anywhere from less than 1% to over 5%. However, the most common range for many of them is between 1% and 3%. When you compare a stock’s annualized dividend payout to its price, you get this number. Depending on their goals and finances, businesses may skip a quarter of dividends and pay them the next.
Keep in mind that stock values dont always go up. Share prices can also fall, leaving investors with stocks worth (sometimes a lot) less than they paid for them. Diversifying your investments and using a strategy called “dollar-cost averaging,” in which you put away a set amount of money every month, can help lower this risk. When prices are low, you can afford to buy more shares. When theyre high, youll buy fewer.
That said, dollar-cost averaging doesnt assure a profit or protect against loss in declining markets.1
Publicly traded stock
Publicly traded stock is probably what you have in mind when you think about stocks. Its the kind of stock typically purchased through brokerages and investment apps, and its price movements may be reported in the news.
A stock is “public” when its company lists it on a major exchange, like the New York Stock Exchange (NYSE) or Nasdaq. This enables everyday investors to buy and sell it, but it also opens companies up to more regulation. If regular people can invest in a company, the Securities and Exchange Commission (SEC) requires that the company share certain financial information with investors to help them make smart choices.
Private companies can become public through direct listings and initial public offerings (IPOs). They can also become public if they are bought by special purpose acquisition companies (SPACs).
Feed your brain. Fund your future.
Private stock
Private stock represents ownership in a private company. Unlike public stock, private stock cant easily be bought or sold through a normal brokerage account. Usually, any sale of private stock needs to be approved by the company itself.
Private stock is less commonly encountered by the typical investor, which can be a good thing. Private companies are much less regulated than public ones and have no obligation to inform the public of their financial health, making it harder for outsiders to judge investment potential. If you work for a private company, however, you may receive private stock as part of your benefits or compensation package.
Common stock
Common stock is the “average joe” of equity. Its the public and private stock type youre most likely to buy and sell.
Common stock represents ownership of a company and gives the shareholder voting rights, letting them influence that companys future. A stock derives value based on the fundamentals of the company and market forces. Return on investment can be broken down to appreciation and dividends.
Common stockholders are the last people—behind bond holders, preferred stockholders, and other debt holders—to be compensated if a company goes bankrupt and must sell its holdings.
Preferred stock
Preferred stocks are like a mix between a common stock and a bond. They can offer predictable income through fixed dividends—like a bond might with interest payments—that are typically paid at regular intervals. Their shares also grant you ownership of a company like common stocks and may appreciate in value as the company becomes more desirable. And “convertible preferred stock” may be converted to common shares by the company or by you if certain conditions are met.
Unlike common stocks, preferred stocks dont come with shareholder voting rights. Another difference: Preferred shareholders always receive dividends and asset payouts before holders of common shares.
Growth stock
Growth stocks are shares of companies that investors expect to grow sales or earnings faster than the market average. Usually, growth stocks belong to smaller, newer companies that have a lot of potential but (at least in the moment) not a lot of profit. Growth stocks typically dont pay dividends, as the companies may prefer to invest extra cash in themselves to grow faster.
Growth stocks tend to have relatively higher stock prices compared to their earnings. When you buy one, youre hoping that companys growth exceeds current expectations, which can drive the share price up. Theres no guarantee that a growth company will get there. And if it doesnt, investor favor may fade, sending prices down. This makes them riskier investments.
Value stock
Value stocks are associated with companies that investors think trade below what theyre really worth based on their earnings, and tend to have relatively lower stock prices compared to their earnings. They tend to be larger, more established companies with solid financial histories. Some even pay dividends.
If you own a value stock, youre hoping the market eventually realizes the stock is undervalued, and its price bounces up. If it doesnt, you may be left holding a stock with good financial fundamentals but that never realizes its potential.
Income stock
Unlike growth or value stocks, investors who buy income stocks are focused on income, generating profit primarily from dividend payments. Share price appreciation is an added bonus.
Income investing can be risky because companies can reduce their dividend or choose not to pay one at any time. To help decrease that risk, income investors focus on companies dividend history, making sure theyve consistently paid or raised their dividend even in down markets.
Investing for Beginners – How I Make Millions from Stocks (Full Guide)
FAQ
How do you get money from stocks?
Capital gains, which is the profit you get from selling your shares at a higher price, and dividends, which are a share of the company’s profits given to shareholders, are the two main ways that stocks can make you money.
How much do I need to invest in stocks to make $1000 a month?
You’ll need a portfolio worth about $300,000 generating a 4% dividend yield to earn $1,000 in monthly passive income. Building a diversified collection of 20 to 30 dividend stocks across different sectors helps protect your income.
How much will $100 a month be worth in 30 years?
You plan to invest $100 per month for 30 years and expect a 6% return. In this case, you would contribute $36,000 over your investment timeline. At the end of the term, your bond portfolio would be worth $97,451. With that, your portfolio would earn more than $61,000 in returns during your 30 years of contributions.
How to turn $1000 into $5000 in a month?
7 Strategies for Investing $1,000 and Making $5000Stock Market Trading. Cryptocurrency Investments. Starting an Online Business. Affiliate Marketing. Offering a Digital Service. Selling Stock Photos and Videos. Launching an Online Course. Evaluate Your Initial Investment.
