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Outbyte PC Repair FREEClear out junk files and repair common Windows errorsFree Scan →Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →You can make money in stocks in two ways: a share price can rise, creating a gain when you sell, or a company can pay dividends to shareholders. Neither outcome is guaranteed. Stock prices can fall, dividends can be reduced or stopped, and you can lose some or all of the money you invest.
How do you make money in stocks?
A stock represents partial ownership in a company. Your return can come from capital appreciation, dividends, or both.
Capital appreciation
If you buy shares and later sell them for more than you paid, the difference is a capital gain before any applicable taxes and trading costs. A higher quoted share price alone is not a realized gain; you generally realize it by selling. Prices can also fall because a company’s business weakens or investors become less willing to pay for its shares.
Dividends
A dividend is a distribution a company may make to shareholders, often from its profits. Companies decide whether to pay one, and may change or end payments. Many growth companies rarely pay dividends; some income-oriented companies have a history of more consistent payments, but a past payment pattern is not a promise of future income. A high advertised yield does not by itself mean a dividend is safe.
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Investor.gov, the U.S. Securities and Exchange Commission’s investor education site, notes that some experts use 7–10% annually as a useful historical estimate for long-term diversified U.S. stock investments. The page does not specify the underlying measurement period, and it stresses that investing has no set rate of return. Treat the figure as a qualified planning reference—not a forecast, a promise, or an estimate for an individual stock. The page’s contribution-growth graphic assumes 7% rather than predicting it. Investor.gov: How stock markets work
Can you lose money in stocks?
Yes. A stock’s price can drop below what you paid, and a company can fail. If a company is liquidated, common shareholders are paid only after creditors and preferred shareholders; there may be nothing left for them. As Investor.gov puts it, “There’s no guarantee that the company whose stock you hold will grow and do well, so you can lose money you invest in stocks.”
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Investor.gov’s undated stock FAQ describes large-company stocks as a group as having lost money on average about one out of every three years. That is a broad historical characterization, not a forecast for any particular year or stock. It is a reminder that even a diversified stock investment can have losing periods. Investor.gov: Stocks
How can diversification affect your risk?
Owning one company’s stock concentrates your investment in that issuer: its business results and market perception can strongly affect your outcome. Diversification spreads investments among companies or other assets with different risks and returns. It may reduce the impact of one company’s poor performance, but it cannot eliminate market risk or guarantee a gain.
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Asset allocation is how an investor divides a portfolio among broad asset classes such as stocks, bonds, and cash. A suitable mix depends on goals, time horizon, and tolerance for losses. A longer timeframe does not make a stock return certain, but it is one factor to consider when deciding how much risk to take. Investor.gov: Investment products
What are the main ways to invest in stocks?
| Approach | What you own | Key consideration |
|---|---|---|
| Individual stocks | Shares in a particular company | Your result depends heavily on that issuer; compare its risks with your goals and ability to tolerate losses. |
| Stock mutual funds | Shares in a pooled fund that invests in stocks | Review the fund’s holdings, risks, and costs; a fund’s diversification depends on what it owns. |
| Stock ETFs | Shares in a pooled fund traded on an exchange | Review holdings, expenses, risks, and liquidity in current fund documents. |
Funds can provide exposure to many securities, while an individual stock is tied to one company. Neither a fund label nor a larger number of holdings guarantees a profit or removes investment risk. SEC guidance identifies stocks, mutual funds, and ETFs as common investment product types, not as recommendations of a particular investment. Investor.gov: Investment products
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How do you buy stocks, and what does it cost?
Common routes include opening a brokerage account, buying through a direct stock plan where available, or investing through a stock mutual fund or ETF. The services, execution choices, eligibility, and fees differ.
- Brokerage account: Discount brokers generally charge lower commissions and leave investment choices to you. Full-service brokers usually cost more and may offer advice based on the firm’s research. Verify current services, account terms, and all charges with the provider.
- Direct stock plan: Some companies offer plans that let eligible investors buy shares directly. A plan may avoid commissions, but can still impose fees, minimums, or eligibility limits; purchases may be scheduled and priced at an average rather than at a time and price you choose.
- Dividend reinvestment plan (DRIP): A DRIP uses dividends to buy additional shares. It can charge fees, and reinvestment does not make the underlying stock less risky.
- Stock mutual fund or ETF: These provide exposure to a portfolio of securities. Read current prospectuses and disclosures to understand holdings, expenses, trading, and risks.
Fees reduce the amount left invested and able to earn returns. In a July 23, 2025 bulletin, the SEC Office of Investor Education and Assistance illustrates fee effects using a hypothetical $100,000 portfolio growing at 4% annually over 20 years. Those are assumptions in an example, not expected or guaranteed performance. Transaction fees may also apply when buying, selling, or exchanging investments. Compare both investment-product expenses and service or transaction costs. SEC: Understanding fees
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How can you evaluate an investment before buying?
- Match it to your goal and timeframe. Decide what the money is for and when you may need it; consider whether you could withstand a decline without having to sell.
- Understand what you would own. For a company, review its business and public filings. SEC EDGAR provides access to company filings: SEC EDGAR search. A filing is information to assess, not a safety certification.
- Compare potential return with risk of loss. Consider how the investment could perform under unfavorable conditions, not just an optimistic scenario or recent price movement.
- Check diversification, liquidity, and costs. Review fund holdings or the concentration of an individual stock, how readily you can sell, and all relevant fees.
- Verify anyone offering advice or selling an investment. Check investment professionals through official resources and be wary of promises of high returns with little or no risk, a warning sign Investor.gov associates with fraud. Registration or disclosure does not make an investment safe. Investor.gov: Avoiding fraud
Stock and fund terms, broker services, and costs can change. The sources here are U.S.-oriented general investor education, not a personalized assessment of suitability or tax treatment. Consult current disclosures and, when appropriate, a qualified professional for advice about your circumstances.
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