are stocks a good way to make money?

Are stocks a good way to make money?

Investors commonly ask: are stocks a good way to make money? This article answers that question by explaining what stocks are, how stocks produce returns (capital gains and dividends), historical performance versus other assets, the risks and trade-offs, common strategies, taxes and costs, and practical steps for beginners. Read on to learn when stocks may fit your goals, how to manage risk, and why a disciplined, low-cost approach tends to matter most.

Note: This article is educational and not personalized investment advice.

Overview — What stocks are and how they work

Stocks (also called shares or equities) represent fractional ownership in a company. Owning one share means you own a portion of the company's net assets and claim on future profits. Publicly listed companies offer shares that trade on primary markets (initial public offerings, IPOs) and secondary markets (exchanges and broker platforms) where buyers and sellers match through supply and demand.

Price movements in secondary markets arise from changing expectations about a firm's future cash flows, macroeconomic conditions, interest rates, and sentiment. Order flow, liquidity, and news (earnings, guidance, industry events) affect short-term prices, while fundamentals and macro trends drive long-term value.

(Background sources: Edward Jones; Vanguard; Investor.gov.)

How you can make money from stocks

There are two principal ways investors earn money from stocks:

• Capital gains (price appreciation): buying shares at one price and selling them later at a higher price realizes a gain. Unrealized gains fluctuate with market prices until you sell.
• Dividends (income): many companies distribute part of earnings to shareholders as cash or stock dividends. Reinvesting dividends compounds returns over time.

Total return equals price change plus dividends received. Over long horizons, reinvested dividends and compounding materially increase wealth compared with price appreciation alone (Vanguard; FINRA).

Historical performance and expected returns

Historically, broad U.S. equity markets delivered higher average returns than cash or bonds, compensating investors for greater volatility. Long-run nominal returns for large-cap U.S. stocks have commonly averaged roughly 9–11% annually in the 20th and early 21st centuries; after inflation, real returns have been nearer 6–7% historically (sources: Investopedia; AAII; Vanguard). Bonds and cash have historically returned less but with lower volatility.

This long-term premium is called the equity risk premium—the excess expected return from stocks over a “risk-free” asset. Past averages are informative but not guarantees: future returns depend on valuation levels, interest rates, global growth, and unforeseen events. Investors should treat historical numbers as context, not a promise (Investopedia; Motley Fool).

Types of stocks and investment exposures

Stocks come in varieties that shape risk and return:

• Common stock vs. preferred stock: common shares provide voting rights and variable dividends; preferred shares sit between debt and equity, offering fixed payments and priority on distributions but typically limited upside.
• Market-cap segments: large-cap (established firms), mid-cap, small-cap (smaller firms often with higher growth potential and volatility).
• Styles: growth stocks (earnings/revenue growth focus) vs value stocks (priced cheaply on metrics like P/E or P/B).
• Income/dividend stocks: companies that pay steady dividends (utilities, REITs, consumer staples).
• Sector and geographic exposure: technology, healthcare, financials, international markets, emerging markets—each carries distinct cycle and risk profiles.

Different exposures fit different goals: income-focused investors may favor dividend payers; long-horizon growth investors may tilt toward growth or small-cap slices (Vanguard; AAII).

Risk and volatility

Stocks are volatile. Key risk categories include:

• Systematic risk: market-wide factors (recessions, monetary policy, geopolitical shocks) that affect almost all stocks.
• Unsystematic risk: company-specific events (management failure, product issues) that diversification can reduce.
• Market corrections and bear markets: declines of 10%+ (corrections) or 20%+ (bear markets) are normal historically.
• Bankruptcy / credit risk: shareholders are last in line if a company fails—equity can fall to zero.
• Liquidity risk: smaller, thinly traded stocks can have wide bid-ask spreads and suffer greater price impact for trades.

Short-term volatility can be severe, but history shows many markets recover over multi-year horizons. Risk management and time horizon choices matter more than attempting to predict every market move (FINRA; Investor.gov; Investopedia).

Time horizon, risk tolerance, and suitability

A core question for investors is how long they can leave money invested and how much volatility they can tolerate. Typically:

• Long time horizon (10+ years): equities have historically offered attractive growth potential and are often suitable as the primary engine for wealth accumulation.
• Short time horizon (0–5 years) or need for capital preservation: stocks can be unsuitable due to the risk of near-term losses; bonds/cash or conservative allocations may be better.

Younger investors often tolerate a higher equity allocation because they have time to recover from drawdowns. Near-retirement investors generally shift toward capital preservation and income to reduce sequence-of-return risk (Edward Jones; Fidelity).

Common strategies to try to “make money” in stocks

Buy-and-hold / long-term passive investing

Buy-and-hold uses broad diversification via index funds or ETFs and emphasizes low costs, tax efficiency, and simplicity. Passive investors aim to capture market returns, benefit from compounding, and avoid the timing and selection errors of active trading. For many investors, low-cost index investing is a reliable long-term method to grow wealth (Vanguard; Fidelity; Bankrate).

Active stock-picking

Active investing involves researching companies, financial statements, competitive advantages, and valuations. Active stock-picking can outperform but requires time, skills, and often higher costs and taxes. Many professionals underperform benchmarks after fees, so retail investors should weigh costs and realistic odds (AAII; Investopedia).

Dividend and income strategies

Dividend growth investing targets companies with stable or rising payouts. Reinvesting dividends adds to compounding; income investors may use dividend-paying stocks or preferred shares for regular cash flow. Dividend strategies may underperform high-growth sectors in bull markets but can provide downside cushioning and income.

Trading and short-term approaches

Intraday trading, momentum trading, and options strategies seek to profit from short-term price moves. These approaches have higher transaction costs, require disciplined risk control, and are statistically challenging: many retail traders lose money over time. Trading can be done, but it is not the same as long-term investing and carries material execution and behavioral risks (Investopedia; Motley Fool).

Dollar-cost averaging (DCA) and regular contributions

DCA means investing a fixed amount at regular intervals. It reduces the impact of volatility by buying more shares when prices are low and fewer when prices are high. DCA is a behavioral tool that helps maintain discipline and is useful for new investors and those building positions over time (Fidelity; Bankrate).

How to evaluate stocks and companies

Key components of stock evaluation:

• Fundamental analysis: review income statements, balance sheets, cash flows; look for revenue growth, profit margins, free cash flow, and debt levels.
• Valuation metrics: price-to-earnings (P/E), price-to-book (P/B), enterprise value/EBITDA (EV/EBITDA), dividend yield, and others—each has sector-specific usefulness.
• Qualitative factors: management quality, competitive moat (brand, network effects, patents), regulatory outlook, and industry dynamics.
• Technical analysis: price charts and volume patterns can help timing for traders, but fundamentals matter most for long-term investors.

No single metric tells the full story—combine quantitative and qualitative checks and consider industry context (AAII; Edward Jones).

Portfolio construction and risk management

Good portfolios balance growth potential and risk:

• Asset allocation: decide target mix between stocks, bonds, cash, and other assets based on goals and risk tolerance.
• Diversification: spread investments across sectors, caps, and geographies to reduce unsystematic risk.
• Rebalancing: periodically restore target allocation to lock gains and buy undervalued areas.
• Position sizing: avoid oversized bets on single names; limit exposure to high-conviction positions.
• Risk controls: stop-loss orders, hedging with options, or holding some defensive assets where appropriate.

Diversification cannot eliminate market risk but reduces the chance that one company or sector destroys a portfolio (FINRA; Fidelity).

Taxes, costs, and practical frictions

Net investing returns depend materially on taxes and costs:

• Taxes: capital gains taxes (short-term vs long-term), dividend taxes, and bracket-specific rules affect after-tax returns. Using tax-advantaged accounts (IRAs, 401(k)s) changes timing and tax treatment.
• Fees: expense ratios for funds/ETFs, broker commissions (often zero for many equities now), and trading spreads reduce returns—low costs compound into meaningful differences over decades.
• Bid-ask spreads and liquidity: bigger spreads increase execution cost, especially for less-liquid stocks.

Minimizing fees and using tax-efficient vehicles can meaningfully improve net returns (Bankrate; Fidelity).

How to get started

Practical starter steps:

1. Define goals: retirement timeline, target outcomes, and liquidity needs.
2. Determine risk tolerance and time horizon.
3. Choose account type: taxable brokerage, traditional/Roth IRA, or workplace retirement plan.
4. Select a platform: pick a reputable broker and tools. If choosing an exchange or trading platform, consider Bitget as an option for spot and derivatives trading and Bitget Wallet for Web3 custody needs—evaluate fees, security, and features.
5. Build a plan: start with diversified ETFs or index funds, or a core-satellite approach (core index exposure + selective active names).
6. Start small and use dollar-cost averaging for new capital.
7. Continue learning: read financial statements, follow trusted educational sources, and review portfolio performance periodically (Fidelity; Bankrate; Investor.gov).

Common mistakes and behavioral pitfalls

Frequent investor errors include:

• Market timing: trying to buy low and sell high typically underperforms disciplined investing.
• Chasing hot stocks or trends after strong rallies.
• Under-diversification: putting too much in one stock or sector.
• Ignoring fees and tax drag.
• Emotional reactions: panic selling during downturns or greed in bubbles.
• Overtrading and failing to respect transaction costs.

Behavioral discipline, an investment plan, and automation (regular contributions) reduce these pitfalls (Investopedia; AAII).

Alternatives and complements to stock investing

Stocks are one asset class among many. Typical complements include:

• Bonds: lower volatility and regular income; useful for capital preservation and income.
• Cash / money market: liquidity and principal stability but low returns.
• Real estate: income and diversification, with different liquidity and management needs.
• Cryptocurrencies: higher-risk, speculative assets with different drivers; treat as distinct from equities and size positions carefully if included.

A balanced portfolio blends asset classes to match goals and risk tolerance (Vanguard; FINRA).

Who is most likely to profit from stocks?

Investors with certain traits tend to fare better with equities:

• Long time horizon and ability to ride through downturns.
• Consistent saving and disciplined contributions.
• Diversified, low-cost approach (index funds/ETFs) or rigorous active research if selecting stocks.
• Clear plan and aversion to emotional trading.

Stocks may be unsuitable for short-term needs or for investors who cannot tolerate steep drawdowns.

Frequently asked questions (FAQ)

Q: Can you make money quickly in stocks?

A: Short-term gains are possible but unpredictable. Trading for quick profits involves higher risk, costs, and a high probability of losses for many retail traders. For most people, stocks are better used for multiyear goals.

Q: Are stocks safer than crypto?

A: Stocks and cryptocurrencies are different. Historically, broad equity markets have longer track records, regulatory frameworks, and earnings fundamentals; crypto assets are newer, more volatile, and have different risks. Neither is risk-free.

Q: How much should I allocate to stocks?

A: Allocation depends on age, goals, and risk tolerance. A common rule is 100 minus age (or 110 minus age) as a rough guide to percent in stocks, but personalized planning is better.

Q: What about the question “are stocks a good way to make money” if I’m young?

A: Many young investors benefit from a larger equity allocation because they can tolerate volatility and benefit from long-term compounding. Still, diversify and keep an emergency fund.

News snapshot and relevance to equities (timely example)

As of January 15, 2026, according to TD Cowen analysts reported by financial outlets, a company known as Strategy revised its price estimate from $500 to $440 after accelerating Bitcoin acquisitions funded by issuing more common and preferred shares. Analysts estimated Strategy would acquire ~155,000 Bitcoins in fiscal 2026 (up from 90,000 previously) and projected the firm’s Bitcoin yield per share to be 7.1% in 2026 versus 8.8% previously and 22.8% in 2025. In a week ending January 11, 2026, the company reportedly sold ~6.8 million common shares and 1.2 million preferred shares, raising about $1.25 billion and using nearly all proceeds to buy an additional 13,627 Bitcoins.

This episode highlights general equity themes: corporate actions (share issuance) can dilute per-share metrics and affect valuation; companies may pursue aggressive capital allocation that changes risk-return profiles; and market expectations about future asset prices (here, Bitcoin) influence investment strategies. Such dynamics reinforce why understanding company strategy, issuance plans, and valuation matters when assessing stock investments.

(Reporting date and source: As of January 15, 2026, reported by financial news outlets citing TD Cowen analyst notes.)

Summary and practical verdict

So, are stocks a good way to make money? Historically, broadly diversified equity investments have been one of the most effective means to build real wealth over long horizons because of capital appreciation and reinvested dividends. That said, stocks require accepting volatility, the risk of substantial drawdowns, and careful attention to costs and taxes.

For many investors, the practical approach to “making money” in stocks is to:

• Focus on long-term goals, not short-term noise.
• Use diversified, low-cost funds as a core.
• Rebalance and minimize fees and taxes.
• Avoid emotional trading and excessive concentration.

If you want to trade or pick individual stocks, be realistic about time commitment, costs, and the higher probability of underperformance versus passive benchmarks.

Further explore Bitget’s platform features and Bitget Wallet for custody and trade execution if considering more active or crypto-adjacent strategies, and always seek professional advice for personalized planning.

References and further reading

• Edward Jones — How do stocks work?
• Vanguard — What is a stock?
• FINRA — Stocks
• Investopedia — Can You Earn Money in Stocks?
• NerdWallet — How to Make Money in Stocks
• Fidelity — How to invest in stocks
• Bankrate — How To Invest In Stocks
• AAII — Beginner's Guide to Stock Investing
• Investor.gov (SEC) — How Stock Markets Work
• The Motley Fool — Stock Market Basics
• TD Cowen research notes and contemporaneous financial reporting (coverage cited above; reporting date: January 15, 2026)

See also

• Index funds and ETFs
• Asset allocation
• Retirement accounts (IRA, 401(k))
• Behavioral finance
• Risk management

This article is educational and not investment advice. Outcomes vary by individual circumstances, timing, taxes, and costs. Consider consulting a licensed financial professional for personalized guidance.