How Do Stocks Make Money for Investors?

How Do Stocks Make Money for Investors?
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A type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders’ meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated.

Investors in U.S. stocks should expect a return of about 6 percent to 7 percent a year, and people who are looking for double those gains are “dreaming,” billionaire investor Warren Buffett said. The economy, as measured by gross domestic product, can be expected to grow at an annual rate of about 3 percent over the long term, and inflation of 2 percent would push nominal GDP growth to 5 percent, Buffett said. Stocks will probably rise at about that rate and dividend payments will boost total returns to 6 percent to 7 percent, he said.

U.S stocks were lower at midday Monday as uncertainty about the timing of Federal Reserve rate hikes and persistent fears about a China slowdown continue to weigh on financial markets after last week’s wild ride.The major indexes are set to close out a volatile August with losses as the S&P 500 heads into the final trading day of the month down about 5.5%, putting it on track for its worst monthly performance since May 2012, according to S&P Dow Jones Indices. The Dow Jones industrial average was down about 40 points, or 0.2%, at 12:40 p.m. ET. The Standard & Poor’s 500 index was down about 0.3%, as was the technology-packed Nasdaq composite, which was down 0.2%.Among the 10 S&P sectors, utilities were the hardest hit and energy saw the largest gains as oil prices continued to jump. U.S. benchmark crude gained another 5.5% to $47.79 a barrel.

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