User:Mlnhther1/sandbox

== BIG MONEY AND STOCKS

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Wealth,Money&big bucks How to make money in the stock industry

There are two possible ways. The first way is when a stock you own appreciates in value - that is, when people who want to buy the stock decide that a share is worth more than you paid for it. They might decide that because the company that issued the stock has earnings that are improving, for example. If you hang onto a stock that has gone up in value, you have what's known as unrealized gains. Only when you sell the stock you can lock in your gains. Since stock prices fluctuate constantly when the market is open, you never really know how much you're going to make until you sell. The second way is when the company that owns the stock issues dividends - a payout that companies sometimes make to shareholders. Here are three real quotes I have heard from friends over time when discussing the stock market.

“Stocks are just a big roulette wheel.. You can’t go out swimming with those sharks on Wall Street – they’ll just eat you up!”

“I don’t know what my retirement money is in.. I just checked some boxes on the sheet when I started my job, but I don’t really understand it”.

“I don’t really believe in mutual funds at all – I’m dedicated enough to do my own research and I can pick winning individual stocks.. I’ve got some Apple, some Google, some Crude Oil/Gold/Pig’s Feet/whatever…..”

All three of these approaches are understandable, but wrong. The sentiments are valid and I’m glad that people at least have an opinion, but each represents a lack of knowledge about the statistics that run the whole system. Knowing the nature of the market is the key to being able to invest huge sums of your money over time with the absolute confidence that you’re not doing anything stupid.

It’s worth gaining this confidence, because investing knowledgeably in stocks has always been the single best thing to do with your money in terms of getting lifetime income with absolutely no effort on your part.

To start with the basics – What is a stock? It’s a slice of a company that you truly own. When you own a share, you have the right (but not obligation) to attend the shareholder’s meeting for that company, vote on important company decisions, and you have a right to a share of any future earnings that company makes. This share of earnings is called a Dividend. In some companies, especially smaller or younger ones, the company elects (with the permission of its shareholders) to reinvest the dividends to help the company grow its earnings even faster. In theory, this means you will get more dividends in the future. Thus, the real value behind any share in a company is the right to get a never-ending stream of dividends from it. For Example, the old, long-profitable company Lockheed Martin currently pays a 3.8 percent annual dividend while growing slowly, while Apple Computer, fancying itself a high growth company, pays zero percent right now and reinvests all profits for faster growth.

Why do stocks go up and down so much? The true value of a stock is based on the amount of dividends this stock will eventually pay you, the shareholder, over time. That dividend depends entirely on how much money the company will make. But nobody actually knows in advance how much money companies will make – they just have a big host of differing opinions. Every day, millions of investors and analysts scurry around and worry about how much money each company will make in the future.

“The Libyan People are Revolting! This will make the world have a shortage of oil, so prices will go up! Oil Companies are now worth more! Buy! Buy!”.

“The US economy is slowing down! This means people will drive LESS to the shopping mall and buy less gas! Oil demand will go down and oil companies will make less! Sell! Sell!”.

It’s a neverending din like this, for every single stock, on every single stock exchange, throughout the world.

If stocks are so crazy, how can I make money off of them? Because in the LONG run, it turns out that all this speculation and volatility always cancels out to absolutely zero. The value of stocks will go up as the earnings of the underlying companies goes up. A portion of the ongoing earnings will always flow to the shareholders as dividends. And all this happens because of the natural ingenuity of hardworking humans making things at a profit, and continuing to advance our knowledge and technology and make us all more productive in every field. There may come a time when we can no longer advance, but based on the fact that we’re still driving around in gas-burning tanks and Home Depot is still doing all of its computing on green-on-black mainframe computers that kick you back to the beginning of the order if you make a typing mistake, I’d say we have at least a lifetime left to go in this department.

So, stocks go up and pay dividends over time, and they have since the beginning of modern commerce. The total return has averaged a very lumpy but fairly dependable 10 percent per year before inflation, 7 percent after inflation. 5 of the 7 percent comes in the form of rising stock prices, and the other 2 comes from dividend payments directly from the company to you. When you’re in your ‘Stashing stage, you just let these dividends automatically reinvest in more stocks which creates a nice compounding effect.