How to Make Money on Shares

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You generally invest in shares of stock because you believe the price of that stock is going to go up. The only problem is that you're typically buying those shares from another investor who is equally convinced the price of those shares is going to go down. Slightly behind "death" and "taxes" as the two certainties of life is the simple fact that the market will fluctuate. This market fluctuation is one way to make money on shares of stock.

Make a list of your assets, including cash and other liquid assets such as funds in checking, savings and money market funds, CDs, retirement accounts, real estate and income. Make a corresponding list of your liabilities, which should include your current living expenses, credit card debt, personal loans, student loans, mortgage and any other expenses you may be liable for.

Determine your investment objectives by factoring in such intangibles as time to retirement, ability to accept risk and amount of funds available for investing in shares of stock. Research current IRS rulings on the tax consequences of short-term capital gains, long-term capital gains and dividend income.

Research investment brokerage firms. Find a company whose investment philosophy most closely matches your own. If you feel confident in making your own investment decisions, you may wish to select a low-cost online brokerage firm.

Open an account with the brokerage firm you have selected. Deposit the amount required by the firm to transact business.

Research the history of companies whose shares of stock have appreciated in value steadily in both good times and bad over a number of 10-year periods. If your objective is long-term capital gains, which are taxed at a more advantageous rate than short-term gains, you can make money on these shares by buying and holding them for at least one year, providing the market price of the stock increases during that time.

Research the history of companies that have paid dividends on shares of their stock in both good times and bad over a number of 10-year periods. If your objective is steady income, you can make money on these shares by buying and holding stock in these companies. Dividends are generally declared and paid quarterly to shareholders of record.

Obtain short-term capital gains, which are taxed at the less advantageous ordinary income rate, by buying shares of stock and then selling those shares at a higher price within one year. This activity is sometimes referred to as "day trading," and it can be quite risky. It requires the investor to be constantly vigilant regarding his or her investment. To be profitable, the investor must take into consideration not only the spread between the purchase and sale price of his or her shares, but also the commissions paid and tax ramifications of the transactions.

Warnings

  • Although the stock market as a whole has increased in value in almost every 10-year period since the Great Depression, past performance is never a guarantee of future results. Investing in equities involves risk. You could lose some or all of your investment.

About the Author

Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.

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