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

Yes, it can just keep growing indefinitely if you buy and hold something like a broad index fund. Yes, annual gains would be compounded… if you invested 1000 and it went up 10%, you’d now have $1100. Another 10% increase would be $110 gain, not $100. Or if you buy and sell individual stocks, there are always going to be ones that move differently than the market as a whole. So you might sell Apple to buy Nvidia if you think one’s growth has plateaued and the other has upside.