Capital gain is the increase in the market value of the purchased assets.
You earn income as an investor by selling the said asset with a higher value.
You bought a company stock of 100 shares
Share Price = $30
Total Buy Amount = 30 x 100 = 3,000
After a week…
You sold all of the 100 shares
Share Price = $50
Total Sell Amount = 50 x 100 = 5,000
So the total Profit is 2,000. The Profit of 2,000 in this case is the Capital Gain.
Buying an asset means that cash is going OUT of your pocket, thus the negative number (3,000) on the Cash Flow chart.
Selling an asset means that cash is going IN of your pocket, thus giving us a positive number 5,000.
Stocks are the most common asset to earning a Capital Gain.
However, there are other assets usually attributed with Capital Gains such as Real Estate and Bonds.
What do I need to earn Capital Gains?
- Well, first thing you need to earn capital gains is CAPITAL or the money upfront you use to buy the asset.
2. Second is the knowledge of where and what to buy these assets.
So if you are buying a share of a publicly listed company, then your best bet is to trade in a stock exchange. Or you may use eToro.
Ohh and by the way…
In earning capital gains, you will be encountering
1. fees (such as broker fees, platform fees, transaction fees, and other fees)
2. and taxes.
So if your profit is 2,000, don’t expect you get all of it as you will have to deduct these expenses.