Shares, also known as equities, give you a share in the ownership of a company. If you buy shares directly, you will own part of the company. This entitles you to a share of its assets and profits.
Part of the profit a company makes will be paid directly to you as a shareholder. These payments, called dividends, are usually made twice a year.
- Shares can make you money in two ways. If the profits are reasonable, you will receive dividends for all the time you hold the shares.
- If other investors think the company profits will rise in future, the amount they are willing to pay for your shares will rise, so you can sell them at a profit.
- Your profit depends on the performance of a company, and what other investors think about how they’ll perform in the future. Economic factors or confidence in future performance can influence how much investors value the company, ultimately affecting the share price.
- Share prices change when interest rates move; when currency exchange rates change, when competitors reveal new strategies; and when new technology becomes available. Share prices consequently fluctuate more frequently than bonds.
Each company listed on the stock market carries a different level of risk. Big companies, with high priced shares, also known as Blue Chip companies, (think BP, or Vodafone) are able to handle far more economic change than smaller companies.
At the other end of the scale, small companies, such as relative newcomers on the Alternative Investment Market, have low priced shares. If you pick a good one, the financial rewards can be good. But, just a 2 pence drop in the share price could see most of your investment wiped out.
Shares are typically utilised by funds alongside fixed interest and cash, to deliver a more balanced investment portfolio. The percentage the fund invests in shares will increase the risk, but equally could enhance the long-term returns.
If you are interested in buying shares you should speak to a specialist adviser such as a stockbroker; however, for most people investing in funds that purchase shares is most suitable. Please contact us for advice on which funds may be suitable for you.