Long Term Growth
The American economy has grown year after year. With the economy, sales and profits grow for well run businesses. When you buy stock, you own a part of that company. With that stock you can share in the profits and rewards that come along with owning a business. Even in these economically tough times there is opportunity for growth. Think of all the big businesses that have been beaten down. Not all of them will go out of business. If you can pick the right company you can realize big gains in a short period of time.
This is another way stocks can repay you. Dividends are a cash payment from a company to its shareholders. Not all stocks pay a dividend. The amount of a dividend is determined by the board of directors, so the amount varies from company to company. A dividend yield of 10% would pay $10 per year on a $100 investment. It can really make you feel like you own part of the company when you share in the company’s profits at the end of the year.
The dividends you earn are taxed as income, but any increase in the value of the stock is not. However, you are taxed on that increase when you sell the stock. The good news is you are taxed at a top rate of 15%, whereas salary income is taxed at a top rate of 35%.