Shares are like small fractions of a company. If you own a share in a company, it means you own a part of the company and a proportion of the company’s value. You can either own shares yourself, or you can pool your money with other people in a collective investment often known as a fund. Funds buy a selection of shares, which are chosen and managed by a fund manager. If you put your money into funds, you don’t have to do the work of choosing the individual investments.
How shares are traded?
Shares are bought and sold on the stock exchange.
Shares from big companies are traded on exchanges such as the London Stock Exchange (LSE) –called ‘listed shares’ – and smaller companies are traded on other exchanges such the Alternative Investments Market (AIM) in the UK.
How to buy shares for beginners?
When investing in shares you are buying and holding a share in a company for a period of your choosing with the aim of your shares rising in value and you realising a gain.
There are two ways you can realise a gain from investing in shares.
- If the company grows and becomes more valuable, the share is worth more – so your investment is worth more too.
- Some shares pay part of the company’s profits, called a dividend, which is paid to the shareholders on an annual basis.
Shares that pay regular dividends may provide a source of income or the dividends can be reinvested to grow your capital. Dividend income is taxed at a different rate from savings interest. Smaller companies often don’t pay dividends.
Buying shares involves risks
The price of a share will go up or down depending on the company’s performance, or the economic conditions it operates in. If the price of a share falls then the value of your investment falls as well.
Though, shares have historically provided better returns over the long run than the other main asset classes: property, cash or bonds, they involve high levels of risk.
Holding shares in just one company involves high levels of risk.
This is because if the company gets experiences difficulties then you could lose some or all of your money.
You can spread your risk by diversifying – buying shares in a variety of companies, and investing in other assets or countries – or by putting your money into pooled investments like unit trusts or OEICs.
If you have a well diversified portfolio and invest for the long term (for more than five years) the risk factor may be low, and you may experience decent returns.
It’s important to educate yourself before you consider any type of investment or investment strategy.
Below are some are some options for you to take into account if you do decide to begin investing.
Choosing a Broker for Your Online Trading
To begin with, you will have to open a brokerage account with a reputed online stock broker. Each online brokers offers different levels of service so it is essentially that you carry out your research extensively and check independent reviews.
The Types of Trades You Can Place with a Stock Broker
There are different types of trades available when you begin online stock trading. Take time to educate yourself and understand on the terminology before you begin.
Avoid Expenses That Reduce Your Stock Trading Profits
There are commissions and fees associated with opening and online stock trading account and buying shares. Avoid over trading so you do not shell out constantly on trading fees and commissions.
With a little planning, you can avoid this and still enjoy trading stocks.
How Stocks Can Affect Your Tax Bill
Investing in shares and realising returns comes with its associated tax liabilities. Take time to research and educate yourself on what your liabilities might be. Additionally research options and products available to you where you can invest tax efficiently.
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Please remember that investments of any type may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.