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But even if a company doesn't pay dividends, it will often make a profit that ends up on the company's books. A part of this profit, proportional to your owners
by marvin 10y ago
But even if a company doesn't pay dividends, it will often make a profit that ends up on the company's books. A part of this profit, proportional to your ownership, belongs to you who own the stock.
In an index fund, the stocks contained in the index will on average pay out a certain dividend and turn a certain profit that isn't squandered on worthless projects.
This last part is what makes stocks increase in market value long-term, and which also makes it reasonable to sell a small proportion of your shares every year as a passive income.
If the dividends and your sales constitute less than 3-4% of your funds' total market value each year, you can expect your portfolio not to decrease in value long-term.
- wfunction 10y ago> But even if a company doesn't pay dividends, it will often make a profit that ends up on the company's books. A part of this profit, proportional to your ownership, belongs to you who own the stock. You're totally missing my point. I'm saying, even if your stock is "worth" $1 trillion, if you don't actually ever sell it, you haven't earned a single penny from it. It's only money when it's actually money. So my question was whether the OP was ever selling the stock or not.
- dgacmu 10y agoThis part of your statement is incorrect: "It's only money when it's actually money." Stocks in major corporations are generally considered a liquid asset - i.e., they can be easily converted to cash. [1] Don't confuse liquidity and risk exposure. The money is still subject to the risk of the market when it's still being held in stocks, but it's approximately as good as money. [1] http://www.investopedia.com/terms/l/liquidasset.asp http://www.investopedia.com/terms/l/liquidasset.asp