Stock Market Basics: Investment Earnings Through Non-Traditional Means
Investments are often viewed as stocks, bonds, mutual funds, ETFs and similar instruments. However, there are ways to earn through investments that some might not consider when jumping into the investing party.
Some common ways to earn through investments are dividends and coupons.
Dividends: Dividends can provide an investor with a reason to invest in a stock that may increase in price as well. Investors are always searching for high dividend yields or stocks that provide a monthly dividend. What some investors fail to realize is that there are ways to use dividends to further your earnings.
Coupons: With a bond a coupon is essentially interest paid out on your principal, which you will receive at the date of maturity. Bonds are considered safe and can often provide higher interest rates than a bank would on a Certificate of Deposit.
Additionally, there are other ways to earn from investments that are a little less common, but once known are used.
Reinvesting Dividends: If you own a stock at say $3 per share and the dividend is paying out $0.18 per share it would be easy to secure another $3 to buy another share of this stock. This is what savvy investors will do. They will use their dividend earnings to buy more shares of the dividend producing stock. This means they're not only obtaining more stock that can increase in price, but they're also earning more dividends. Those who continue this pattern over a lengthy period of time can earn quite a bit.
Stock Splits: Some investors don't realize that stock splits can get them earnings they wouldn't have otherwise realized. In most cases you're receiving two shares of stock for every one share you initially had. Initially on a stock split the price of the stock will also split. If there is a two for one stock split, the stock price will split in half. The earnings come because quite often after stock splits the price of the stock eventually climbs back to where it was when the stock split occurred. You now have two times the shares at the same price once this milestone is met. You can sell the additional shares you received from the stock split for earnings or wait for this event to occur again. There are some people who have gone through five stock splits, holding five times their initial investment, while the price per share is above their initial cost.
Stock Buybacks: Some companies decide to buy back their stock shares, as shares are used to fund capital for companies. In a lot of instances the company is willing to pay more than the actual price of each share in order to do this. You earn here too if you sell a $50 stock share back to the company for $60.
Commodities: Some investors will put their money towards commodity futures. If they see the price of gold going down they may make a decision to enter this market and hope the price goes up. However, I'm referencing actually owning commodities to use for earnings to invest with. For example, if you have a gold bar you can sell it for the going rate and use those earnings to invest in a stock you might not otherwise have been able to afford. Sitting on a commodity waiting for the price to go up is a speculative practice. This is why so many people will go and sell their copper, as an example.
Invest in a Startup: Companies have to start somewhere and your capital might help the startup grow. If you own 40% of a startup company and it goes public you receive shares of the company [in a lot of cases without having to buy them]. By this time your initial funding will have been returned and your shares can be sold at any point for additional earnings.
Currency Exchanges: This is more common for individuals that have residency in two different countries. For example, the Peso to US Dollar fluctuates, but if you hold residency in Mexico you can transfer US Dollars to your account in Mexico when the exchange rate is high. When you are in Mexico you can then invest in the exchange market there, that you might not otherwise be able to invest in. Some investment platforms will let you invest in foreign stocks, while others won't.
Be sure to recognize that not all of these earning opportunities may provide the same outcome for you. For example, guessing on currency exchanges can be difficult even for the most studious observer, while stock splits and buybacks are often things investors just fall into. Be patient. You can earn from these methods.