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How do shares actually work?

clock icon March 30, 2017
tag iconFinancial Planning Wealth Strategies

Have you got money stashed away but you aren’t sure what to do with it? Are you thinking about buying shares but don’t know how?

Keep reading for a crash course in the Australian share market, something you can invest in with as little a thousand dollars.

What are shares?

Shares are an equal part in a company’s capital. The owner is then entitled to a share of the company’s profits. The company pays the shareholders a dividend usually on a quarterly or six monthly basis.

How do I buy shares?

Shares in a public company can only be bought if someone is selling, and only at a price they are willing to sell for. If that’s the case, they will be listed on the Australian Stock Exchange. To access the stock, you will need to enlist the services of a stock broker in person, or take advantage of an online broker. Although a stock broker is more expensive, they can give you advice and recommendations on which companies to invest in. Alternatively, an online broker, such as Commsec, will have less fees but give you zero guidance. Online brokers will charge a fee once you buy and sell shares.

When starting out, stick to what you know. The list of companies to invest in is long, so choose ones that you are interested in within an industry you know or a product you think is great.

On the other hand, if you aren’t confident in buying and selling shares, another option is to invest in a managed fund. In a listed managed fund, also known as Exchange Traded Fund (ETFs), your money is pooled together with other investors, like yourself. An appointed manager then buys and sells shares on the behalf of the group.

What else do I need to consider?

Most importantly invest wisely. Buying shares is a long-term investment, if you think you are going to need the money in the next five years, then it probably isn’t the right time to start investing in the share market. Another thing to keep in mind before parting ways with your hard-earned cash is to have an investment strategy. A good strategy is the key to building a successful share-market portfolio.

 

If you’re considering buying shares as way to build your wealth in 2017, speak to one of our Financial Advisors or attend a short-course in Wealth Creation. Save 50% with discount code: SW50BLG

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