How to Improve Financial Literacy: Effective Ways

Income from investments is the result of precise calculation and strategy. The modern market offers dozens of tools for financial gain. However, only a systematic approach allows avoiding mistakes and maximizing the potential of securities. In this article, we will discuss how profit from investments in stocks is formed, which strategies actually work, and why discipline is more important than emotions.

Starting point — logic, not charts

In the financial market, the price of a stock is not a dogma but a variable that reacts to a whole range of factors. Quotations move expectations, not facts. Example: in January 2023, Tesla’s assets depreciated by 12%, despite record car deliveries. Why does the stock price fall? The expectation of future growth slowdown outweighed the current achievement.

Income from investments is not a guessing game or roulette. It’s a game with variables: buy at point “A,” sell at “B,” and get the difference. This principle underlies all earnings on securities.

Dividends and price difference

Profit from investments in stocks consists of two channels:

• dividend yield — like a salary from an asset;
• price appreciation — like a reward for patience.

If a company pays 5% annual dividends and simultaneously adds 12% to the price, the total yield approaches 17% per year. Example: in 2022, “Norilsk Nickel” paid 1832 rubles with a price of around 15,000 rubles. This is a 12.2% dividend yield.

Securities create an ecosystem where investing brings stable income with a proper risk assessment and understanding of volatility.

Why stock prices rise

Price growth is not magic but a derivative of clear events:

• company profit growth;
• positive industry forecasts;
• stock buybacks;
• key rate reduction.

Factors affecting securities prices include dozens of indicators: margin, debt load, international conjuncture, inflation. In 2020, Apple grew by 81% due to an almost $1 trillion increase in market capitalization and aggressive ecosystem expansion.

Here, profit from investments in stocks is related not only to fundamental evaluation but also to crowd behavior — the market often anticipates events by 6–12 months.

Investment risks

The stock market can both multiply and nullify. Investor mistakes repeat with alarming precision:

• buying at the peak — selling in panic;
• ignoring volatility;
• betting on hype assets without fundamentals.

Beginner investments often suffer from a lack of discipline and overvaluation of short-term profit. Financial returns from stock market investments turn into losses if the investment horizon is ignored. Example: investments in Zoom in 2021 led to a -60% return in 12 months, despite record revenue.

How to achieve stable profit from investments in stocks

The income formula depends on the style. A long-term investor seeks stability, while a trader focuses on short-term fluctuations. Here is an expanded list of actions ensuring stable income:

1. Portfolio formation — asset diversification reduces volatility and maintains profitability.
2. Analysis of fundamental data — P/E, EPS, ROE, debt volume.
3. Evaluation of dividend policy — regular payments reflect business stability.
4. Monitoring news background — macroeconomics directly affects quotations.
5. Exiting at target levels — profit fixation prevents income losses due to greed.
6. Tax consideration — dividends and price difference are taxed, their accounting is necessary for accurate income assessment.
7. Regular rebalancing — portfolio review enhances capital efficiency.

These steps not only help preserve capital but also systematically increase it throughout the investment horizon. Stable income from investments in securities is the result of discipline, not intuition.

Investing in stocks from scratch — reality, not a dream

The financial market has become accessible even with a budget starting from 1000 rubles. Brokerage apps have simplified entry, but they have not eliminated the need for a strategy.

Starting investments in securities from scratch means starting small but regularly. For example, buying ETFs on the Moscow Exchange index or S&P500 allows for profit collection without selecting specific companies.

At the same time, the reward for a systematic approach is not inferior to the income from active management. The Vanguard S&P500 ETF (VOO) from 2011 to 2021 brought over 250% total financial result without the need to make manual decisions.

Dividends as income stabilizers

Dividends not only generate income but also act as a “cushion” during periods of declining quotations. Companies that consistently pay rewards to shareholders signal financial health and stable cash flow.

A classic example is the preferred assets of “Surgutneftegaz”: even in conditions of low capitalization and weak market interest, investors continued to receive generous payments reaching 20–25% per year. This is real earnings on stocks, independent of market volatility.

Dividend yield becomes a key criterion in the “investing in stocks from scratch” strategy, especially for novice participants.

Psychology vs. mathematics: investor behavior

The market is not just numbers but also emotions. It is often the irrational actions of investors that shape stock prices more often than reports and economic summaries.

Why does the stock price of a company showing record revenue fall? The reason is inflated expectations, fear, or mass fixation on income. After the third-quarter report in 2022, Amazon lost $100 billion in market capitalization in a day, despite sales growth. Investor behavior defied common sense.

Income from investments in securities largely depends on the ability to resist panic, hold positions, and trust the strategy. Psychological resilience is as important as financial analysis.

Recognizing potential: stock evaluation strategies

Fundamental analysis is the basis of informed investing. Evaluating parameters helps forecast income and avoid buying overvalued assets.

Key metrics:

1. P/E (price/earnings) — the lower, the more attractive.
2. P/B (price/book value) — important for the financial sector.
3. ROE (return on equity) — reflects management efficiency.

Securities with high dividend yield and moderate volatility often form the core of investors’ portfolios seeking stability. Among them are “MTS,” “Severstal,” “Alrosa” before the sanction period.

Main mistake — ignoring the horizon

Short-term income fixation often leads to missed profitability. Income from investments in stocks grows in geometric progression with long-term position holding. For example, investing in Microsoft stocks from 2010 to 2020 provided an 820% increase, including dividends.

Beginner mistakes include:

• excessive activity;
• ignoring commissions;
• abandoning a long-term strategy.

Investments for beginners should be based on the principle of “less movement, more analysis.” This approach forms stable income, reducing investment risks.

Profit from investments in stocks: conclusions

Income from investments in stocks is not a coincidence but a result of calculation, patience, and strategy. The financial market offers opportunities but requires discipline. Growth, declines, dividends, risks — everything is subject to analysis if the tools are used correctly.

The structure of corporate capital begins not with calculations and schemes, but with understanding how a business formalizes ownership and distributes profits. Shares are legally documented stakes in a company that reflect an investor’s rights to a portion of assets and profits. Public corporations issue securities to attract capital from the market, while private ones distribute shares among a limited circle of owners. In both cases, it is not just about the asset, but about the right to influence, participate, and receive dividends. The main types of shares represent not formality, but the foundation of a business structure that determines who manages, who receives income, and who bears the risk. When choosing, it is important to consider not only the category but also internal parameters: liquidity level, degree of risk, voting rights, and dividend payment order.

Preferred Shares: Fixed Income without Voting Rights

The issuance of preferred shares allows companies to attract investments without losing control. Unlike common shares, they do not grant voting rights at shareholder meetings, but provide fixed income and priority in dividend payments and asset distribution in case of liquidation. The main types of shares in this segment include:

1. Cumulative. Accumulated but unpaid income on them is retained and paid later. Example: “Gazprom Neft” suspended payments during the crisis, but later compensated for the accumulated amounts.
2. Non-cumulative. In the absence of profit, the company is not obligated to compensate for missed payments. Such shares are riskier but often bring higher returns.
3. Convertible. Allow for future exchange of preferred shares for common shares at a predetermined ratio. For example, in 2020, “Tatneft” introduced a series with the possibility of conversion within 3 years.
4. With a fixed rate. Income on them is predetermined in the charter or issuance documentation, usually expressed as a percentage of the nominal value, for example, 10% per annum.

The advantage of such securities remains predictability. For example, in 2023, Surgutneftegaz’s preferred shares provided a yield of 15.4% per annum due to the company’s high foreign exchange reserves. However, an investor holding only preferred shares cannot influence strategic decisions.

Common Types of Shares: Voting Rights, Main Risks, and Share in Success

This type of securities represents the most common form of participation in capital. The main types of shares with voting rights allow owners to participate in management—vote at meetings, elect the board of directors, and approve strategic initiatives. Their profitability is not fixed, depending on the company’s profit and the board of directors’ decisions. At the same time, potential returns can significantly exceed those of preferred securities, especially in the business growth phase.

A classic example is Lukoil’s shares. Ordinary shares in 2022 not only provided holders with high dividends (up to 850 rubles per share) but also the right to vote on a share buyback program worth 3 billion dollars, thereby increasing the capitalization of the remaining shares.

It is also worth highlighting a special subcategory—voting shares with restrictions. In some cases, a company may establish a rule whereby one shareholder can vote with no more than a certain number of shares, reducing the risk of monopolization.

In practice, such securities involve risks: in case of bankruptcy, the holder receives payments last, and in the absence of profit, remains without dividends. However, in the case of rapid capitalization growth, these securities grow faster than others.

Classification of Main Types of Shares by Issuer Type and Trading

In addition to differences in rights, the main types of shares are classified by issuer type, liquidity, and trading conditions. Systematization helps to better understand the risk structure and potential.

Exchange-Traded and Over-the-Counter

Exchange-traded shares are traded on organized platforms: Moscow Exchange, SPB Exchange. They undergo listing, comply with information disclosure requirements, and have high liquidity. Over-the-counter securities, such as shares of private companies or non-public JSCs, are more often sold through private transactions, have low liquidity, and a high degree of risk.

National and Foreign

Russian investors can acquire shares of both domestic issuers (for example, Polymetal, MTS, Yandex) and foreign ones—through depositary receipts or directly on foreign exchanges. For example, shares of Apple, Tesla, and Coca-Cola are traded on the SPB Exchange with a full link to NASDAQ dynamics.

Ordinary and Fractional

The emergence of investment platforms (Tinkoff Investments, VTB My Investments, SberInvestor) has made it possible to purchase fractions of shares, for example, 0.05 Google shares or 0.2 Microsoft shares. This has expanded access to high-priced shares—one Amazon share was priced at $3200 in 2021.

This typology allows for a more precise portfolio formation based on goals: speculation, accumulation, protection against inflation, or participation in management.

Legal and Economic Differences: How Rights Determine Income

The main types of shares differ not only in name and nominal value but also in the legal consequences of ownership. Each type of security is formalized differently and endows the investor with a certain set of powers. For example:

1. Right to dividends. Only shareholders registered in the register by a certain date (the so-called dividend cutoff) receive income. For common shares, it may vary, for preferred shares, it is fixed or depends on net profit.
2. Right to vote. Only common shares grant it in full. Some preferred shares have limited voting rights if the company does not pay dividends for two consecutive years.
3. Right to a portion of assets. In case of liquidation, creditors receive payments first, then preferred shareholders, and only then holders of common shares.
4. Conversion and restrictions. The charter may stipulate the right of conversion, preferential buyback, or restrictions on transfer to certain individuals (for example, when selling strategic enterprises).

Developing a corporate structure requires a precise balance: issuing too many preferred shares reduces the attractiveness of common shares, an excessive proportion of voting securities weakens management.

Portfolio Application: How Roles of Different Types of Shares Are Distributed

Investment strategy directly depends on which securities are included in the portfolio. The main types of shares perform different functions:

1. Preferred shares—source of stable income. Suitable for those building a portfolio for regular payments. For example, Bashneft’s or Mechel’s preferred shares regularly rank high in dividend yield—from 12% to 18% per annum.
2. Common shares—instrument for capital growth. Shares of Yandex, Tinkoff, Polymetal have shown growth of 3–5 times in recent years. Ideal for long-term capital growth.
3. Foreign securities—protection against devaluation. Owning shares in dollars or euros hedges against inflation and currency risks. ADRs on American companies are particularly popular.
4. Over-the-counter—speculative interest. Shares of small JSCs can generate income through mergers and acquisitions but require analysis and patience.

An optimal portfolio considers the share of each type depending on the goal: protection, growth, stability, flexibility.

Capital Structure as a Financial Instrument

Understanding how the main types of shares are structured allows for a more informed use of the market. There is no universal tool—each type plays its role in the system. A strategic investor builds a portfolio, combining liquid common shares with predictable preferred shares and high-yield ADRs. Passive income, business control, tax benefits, inflation protection—all of this is embedded in the capital structure through share types.

The market is constantly changing, and along with it, investor behavior transforms. But the foundation remains: understanding the rights, returns, and ownership conditions of each type of share determines the effectiveness of any investment.