Eli5: How is money made from stocks?

Question

I understand buy low and sell high, but then what?

If, say the S&P500, keeps growing there is no ‘peak’ to sell at. Do the gains compound? if so how? Or do you just hold it forever and sell when you want to get the money?

In: Economics

Answer 1

There are two separate ‘strategies’. One is you invest in a company that is valued low but you think will do well, so you buy cheap, then if and when the company grows substantially you sell. That might be because you believe they’re overvalued now and the stock might reduce soon for example. The second option is you treat the stock market like a bank – you invest in a mature, stable stock with essentialy zero risk. It’ll slowly rise and you just keep your money there forever or untill you want to use it – just like in your bank.