How Much Money Do You Make If a Stock Goes Up? Your Comprehensive Guide to Stock Profits

Let’s be real – we’ve all dreamed of buying that perfect stock that suddenly skyrockets, turning our modest investment into a small fortune overnight. But exactly how much money will you actually pocket when a stock goes up? The answer isn’t quite as straightforward as you might think.

I’ve been investing for years and one thing I’ve learned is that calculating your actual profits from stock gains requires understanding a few key factors. Let’s break it down in simple terms so you can realistically plan your investing strategy.

The Basic Stock Profit Formula

At its most basic, your profit from a rising stock equals:

Profit = (Sell Price – Purchase Price) × Number of Shares – Commissions

For example, if you bought 10 shares of a stock at $50 each and sold them at $60 each:

• Your profit would be: ($60 – $50) × 10 = $100

But this basic calculation only scratches the surface. Let’s dive deeper.

Factors That Determine Your Stock Profits

1. Number of Shares Purchased

The more shares you own, the more money you’ll make when the stock price increases. It’s simple multiplication:

This might seem obvious, but it highlights an important point: your initial investment size matters tremendously in determining your potential profits.

2. Percentage Gain vs. Dollar Amount

Thinking in terms of percentage gains rather than dollar amounts helps you compare investments more effectively.

For example:

• If a $10 stock goes up to $11, that’s a 10% gain
• If a $100 stock goes up to $110, that’s also a 10% gain

Both scenarios represent the same percentage increase, but the dollar amount of your profit depends on how many shares you own.

3. Trading Commissions (When Applicable)

While many online brokers now offer commission-free trading, some still charge fees that can eat into your profits. Using the NerdWallet Stock Calculator, we can see how commissions affect your bottom line:

For a purchase of 100 shares at $50 with a $7 commission to buy and $7 to sell, and a selling price of $60:

• Profit without commissions: $1,000
• Profit with commissions: $986 ($1,000 – $14)

On small trades, commissions can significantly reduce your percentage return.

Real-World Example Using Stock Calculators

Let’s use Fidelity Bank’s Stock Calculator and NerdWallet’s Stock Calculator to work through a practical example:

Scenario:

• You purchase 50 shares of a stock at $75 per share
• The stock rises to $95 per share
• Your broker charges no commissions (common nowadays)

Calculations:

1. Purchase cost: 50 × $75 = $3,750
2. Sale proceeds: 50 × $95 = $4,750
3. Profit: $4,750 – $3,750 = $1,000
4. Return on investment: $1,000 ÷ $3,750 = 26.7%

This example demonstrates that a $20 increase in share price resulted in a 26.7% return on your investment. Not bad!

Beyond the Basics: Other Factors Affecting Your Profits

Capital Gains Taxes

The government always wants its share! Your profits will be subject to capital gains tax, which varies based on:

1. Holding Period:

   • Short-term gains (held less than a year): Taxed at your ordinary income rate
   • Long-term gains (held more than a year): Typically taxed at lower rates (0%, 15%, or 20% depending on your income)

2. Your Tax Bracket: Higher income investors pay higher capital gains rates

For example, if you made that $1,000 profit from our earlier example and you’re in the 22% tax bracket:

• Short-term gain tax: Approximately $220
• Long-term gain tax (at 15%): Approximately $150

This is why many investors prefer to hold stocks long-term – the tax advantages can be substantial!

Dividends

Some stocks pay dividends, which provide additional income beyond just price appreciation. If you’re calculating your total return, don’t forget to include:

• Quarterly or annual dividend payments
• Dividend reinvestment if you’re using a DRIP (Dividend Reinvestment Plan)

A stock that rises 5% but pays a 3% dividend actually gives you around an 8% total return.

Inflation

This is something many newer investors overlook. If inflation is running at 2-3% annually, your real returns (purchasing power) are reduced by that amount.

A 10% stock gain during a year with 3% inflation means your real return in terms of purchasing power is closer to 7%.

Practical Examples of Stock Gains at Different Investment Levels

Let’s look at how different investment amounts translate to profits with the same percentage gain:

This shows why building your investment base is so important – the same percentage gain translates to significantly larger dollar amounts as your portfolio grows.

How to Calculate Your Own Stock Profits

You can easily calculate your potential stock profits using online calculators. Both the Fidelity Bank Stock Calculator and NerdWallet Stock Calculator provide simple interfaces where you input:

1. Number of shares purchased
2. Purchase price per share
3. Selling price per share
4. Any commissions paid

The calculators will then show you:

• Total purchase cost
• Total sale proceeds
• Profit or loss amount
• Return on investment percentage

These tools are invaluable for planning your investment strategy and understanding the potential outcomes of your stock purchases.

Strategies to Maximize Your Stock Profits

1. Dollar-Cost Averaging: Invest fixed amounts at regular intervals rather than trying to time the market

2. Diversification: Spread your investments across multiple stocks and sectors to reduce risk

3. Long-Term Holding: Benefit from lower tax rates on long-term capital gains

4. Dividend Reinvestment: Automatically reinvest dividends to purchase more shares, compounding your returns

5. Tax-Advantaged Accounts: Use IRAs, 401(k)s, and other tax-advantaged accounts to defer or eliminate taxes on gains

Common Mistakes to Avoid When Calculating Stock Profits

1. Forgetting about taxes: Always factor in the impact of capital gains taxes

2. Ignoring inflation: Remember that a 7% gain during 3% inflation is really only a 4% gain in purchasing power

3. Overestimating returns: The stock market historically returns about 10% annually on average, but with significant variation

4. Anchoring on purchase price: Don’t hold a losing stock just to “get back to even” – make decisions based on future prospects

5. Not accounting for opportunity cost: The money tied up in underperforming stocks could be earning better returns elsewhere

Final Thoughts

Understanding exactly how much money you’ll make when a stock goes up involves more than just simple subtraction and multiplication. By factoring in taxes, inflation, dividends, and using the right tools like stock calculators, you can make more informed investing decisions.

Remember, stock investing isn’t a get-rich-quick scheme. The biggest gains typically come from patient, long-term investing with a diversified portfolio. But now that you understand how to calculate your potential profits accurately, you’re better equipped to set realistic expectations and plan your investment strategy.

So next time you’re eyeing that hot stock tip, take a moment to run the numbers through a calculator like the ones from NerdWallet or Fidelity Bank. You might be surprised at what you learn about your potential returns!

The future value of a single $1,000 investment in 20 years depends on the rate of return, but it will grow to at least $1,485.95 (at 2%) and could reach over $6,700 (at 10%) and potentially over $32,000 (at 18%).