How Do You Make Money Investing?

If you are first starting out, it is important to understand there are many methods to make money investing. A successful investor knows the goals of their portfolio. For example, would you like to make a little money to supplement your income, or are you looking to save for the future? These types of investment goals will determine which profit model you should pursue.

Dividend and Yield

For an investor looking to supplement their income, it is wise to consider dividend, or high yield options. In a dividend-heavy portfolio, the investor will select stocks that pay out most of their annual earnings. For example, if shares are held in Company X, and it has a good year, it will pay out profits to all its shareholders. Other options would allow Company X to invest the earnings back into the company to try to increase the underlying value of the stock. This is not a dividend-heavy model. Most stocks offer a mix of dividend payments and capital appreciation. However, if you truly want cash day-by-day, you can find a number of companies offering stocks weighed heavily on the dividend earnings side.

Short and Long-Term Capital Gains

Capital gains is the money you earn when you sell shares of a stock you purchased. In the above example, if Company X invested some of its earnings back into its own growth, the value of the underlying shares of Company X may appreciate. As an investor, you may decide to sell these shares to make money. If you held the shares less than one year, you are earning short-term capital gains. It is important to realize these are the more heavily taxed of the two models. Holding a stock for more than a year will put you in the long-term capital gains category, and your tax burden will be reduced.

Interest

You may hold a bond or stock that has a given interest rate payment. For example, you purchase a bond in Company B. Company B will pay you back for your purchase in 10 years; in the meantime, Company B will pay you 2 percent of the total value of the bond each year. After two years, Company B is doing very well. It begins issuing bonds at 3 percent interest. Unfortunately, this makes your bond less valuable if you were to attempt to resell. Even with this depreciation, though, you will be guaranteed to at least receive your initial investment in return as long as the company does not go bankrupt.

Tax Benefits

Investing can not only give you an avenue to earn money, it can help you save money on your taxes each year. Investing in retirement accounts and annuities may provide you with an immediate deduction from your taxes this year. Some investments also grow on a tax-deferred basis. You can additionally structure your capital holding in order to mitigate capital gains through capital losses, ultimately lowering your tax burden in a given year if you earn large incomes through other investments like a real estate sale on a secondary property.

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