But even if a company doesn't pay dividends, it will often make a profit that ends up on the company's books. A part of this profit, proportional to your ownership, belongs to you who own the stock.

In an index fund, the stocks contained in the index will on average pay out a certain dividend and turn a certain profit that isn't squandered on worthless projects.

This last part is what makes stocks increase in market value long-term, and which also makes it reasonable to sell a small proportion of your shares every year as a passive income.

If the dividends and your sales constitute less than 3-4% of your funds' total market value each year, you can expect your portfolio not to decrease in value long-term.

> But even if a company doesn't pay dividends, it will often make a profit that ends up on the company's books. A part of this profit, proportional to your ownership, belongs to you who own the stock.

You're totally missing my point. I'm saying, even if your stock is "worth" $1 trillion, if you don't actually ever sell it, you haven't earned a single penny from it. It's only money when it's actually money. So my question was whether the OP was ever selling the stock or not.

This part of your statement is incorrect: "It's only money when it's actually money."

Stocks in major corporations are generally considered a liquid asset - i.e., they can be easily converted to cash. [1]

Don't confuse liquidity and risk exposure. The money is still subject to the risk of the market when it's still being held in stocks, but it's approximately as good as money.

[1] http://www.investopedia.com/terms/l/liquidasset.asp

Index funds tend to have some dividends, because while not all stocks yield dividends the dividends from the ones that do still get distributed to the holders of the fund.

Ahh, makes sense, I should've guessed. Thanks!!

If you sell you pay taxes on the gains, so you are probably better off borrowing against your investments if you need cash, since borrowing isn't a realization event for tax purposes.

Investments that pay dividends aren't as good for individuals since the dividends are taxes at ordinary rates.

> you are probably better off borrowing against your investments if you need cash

I don't understand what that means. Whom would you be borrowing from? Where would the cash be coming from?

Your broker https://www.interactivebrokers.com/en/index.php?f=interest&p...

Also, wouldn't this mean you have to pay interest on the ENTIRE amount of the loan, as opposed to tax on just the gains? So if you have $1000 that means at 2% interest (I assume that's yearly) you're paying $20/year, whereas if your stock went up 5% (= $50), that means you'd be paying (say) 25% of that, which is $12.50. So it should be only better if either have a high tax rate or your stocks /really/ increased in value (not just kept pace with inflation).

That requires 110k$ and you can't just take money with that rate, it's margin. So you should have more than 110k$ to take some of that money and replace them with margin.

What happens if your stock goes to zero in the meantime while you've borrowed against it?

Broker will sell your stocks to prevent it's losses.

You would borrow from the bank, using your stock holdings as collateral. Not as easy as he makes it sound, but not unheard of if you have even a meager amount. Say, at least 50k.

Dividends