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

You buy it low. You then hope the company grows, and its share price increases. Then when you want the money, or when you think the company’s going to stop growing, or you simply want to diversify your investments – you sell.

So for example, if you want to buy a new house, you sell. Or if the share price has expanded so much that it’s now too large a portion of your portfolio (eggs in one basket), you sell. Or if you “got a hunch”, you sell.