Stocks Can Add Oomph

In addition to the opportunity to own part of a company, you receive monetary benefits when you own stock shares. Owning stock allows you the opportunity to earn money on money.

Benefit from earnings

You may be paid regular dividends if you own preferred stock. Common stock may also pay dividends, although they are not fixed. With enough shares of stock, you can earn enough income to supplement your living expenses or to finance large purchases.

Benefit from price increases

When you sell shares after they have risen in value, you have a capital gain.

This is one of the chief attractions of stock—the opportunity to make money from increases in price. Capital gains are the way that many investors look to earn money in the stock market.

For example, over 10 years through Oct. 2012, Netflix returned 33% per year on average. Try getting that kind of result from a mutual fund. But before you get too excited, you should know that Netflix stock would have returned much more had it not lost 60% of its value in 2011.

The advantage of stocks

Historically, stocks have performed better than most other investments. This is a testament to the growth of the economy in the United States. According to studies done by Ibbotson Associates, the average yearly return of a share of stock has been approximately 10 percent since 1926. This means that if $10,000 had been invested in stocks for 40 years, and dividends and capital gains had been reinvested instead of kept, this $10,000 would have been worth about $444,000 after the 40 years. Of course, the actual annual return would vary largely, but the long-term average is impressive.