Investing in shares
by Wealth Know How in DIY Investing
Investing in shares makes you part-owner of a business but the expectation is that you will be rewarded by capital gain and dividends. Shares can be a terrific investment but there are always risks you need to be aware of before making a decision. We explore the basics of share investment so that you’re better informed.
- sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 25 Jul 14
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Investing in shares makes you part-owner of a business but the expectation is that you will be rewarded by capital gain and dividends. Shares can be a terrific investment but there are always risks you need to be aware of before making a decision. We explore the basics of share investment so that you’re better informed.
Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
-
Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
Shares can be a very sound long-term investment but can also be extremely volatile in the short term, making them risky to use in the hope of making a quick profit.
The benefits of investing in shares are potential capital gains from an asset that can grow in value over time, and potential income from dividends.
There are different ways to invest in shares, either directly through the stock exchange or through managed funds – each has pros and cons. You can buy individual shares directly, through a full-service broker, an online trading account or from the company itself when it offers shares through a public float.
Any amount of money can be invested at any time, or withdrawn from the investment by selling, which makes shares a very flexible investment.
You can also buy shares through an exchange traded fund or ETF, which is itself is listed, but which represents a basket of shares that make up an index or portfolio of shares, for example, the S&P/ASX200 Index. An ETF allows you to diversify your portfolio cheaply and simply, without having a large amount of money to invest.
You can also invest in a managed fund, where your money is pooled together with that of other investors, and a professional fund manager assembles and manages a portfolio on your behalf. This is a convenient way to buy shares, where someone else is responsible for the buy and sell decisions, but look closely at the fees charged by the fund manager.
Before you invest in shares, you should understand the benefits and risks.
The main risks of investing in shares are that share prices for a company can fall dramatically, even to zero. However it is unlikely if you invest in a well-diversified portfolio of shares with a sound track record of profitability that the value of the portfolio will fall to zero.
You must accept that the value of your shares will go up and down from day to day, and the dividend or distributions may vary.
If the company goes bankrupt, you are the last in line to be paid, so you may not get your money back.
But if the company goes on to enjoy a profitable track record, and pays a rising dividend stream, your shares may reward you many times over, from both the dividend income and the capital gain.