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Dividends vs Capital Gains: What's the Difference?

When it comes to investing in stocks, there are two main ways that you can make money: through dividends or capital gains. But what exactly are these two things? And what's the difference between them?

What Are Dividends?

Dividends are payments that companies make to their shareholders, typically on a quarterly basis. They are usually paid out of the company's profits, and they give shareholders a way to participate in the company's success even if the stock price doesn't go up.

What Are Capital Gains?

Capital gains are profits that investors make when they sell their investments for more than they paid for them. For example, let's say you buy a stock for $50 and it goes up to $60, you've made a $10 capital gain. Capital gains can be either short-term (if you hold the investment for less than a year) or long-term (if you hold it for more than a year).

The Difference Between Dividends and Capital Gains

The main difference between dividends and capital gains is that dividends are paid out regularly by the company, while capital gains only occur when you sell your investment.

Which Is Better?

There is no easy answer to this question. It depends on your individual circumstances and goals. For example, if you need regular income, dividends may be a better choice. On the other hand, if you're looking to grow your wealth over the long term, capital gains may be a better option.

The Bottom Line

Dividends and capital gains are both ways to make money from investing in stocks. Dividends are paid out regularly by the company, while capital gains only occur when you sell your investment. There is no easy answer to the question of which is better. It depends on your individual circumstances and goals.

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