How to Start Investing In Shares
Shares is a means to accelerate your wealth but sometimes it can seem discouraging because investing in shares is not a guaranteed. When you have decided to create wealth by investing in shares, it is risky but yet a bold move.
Investing in shares just means owning a portion or a share of a company. The term share and stock are often interchangeable. By owning shares in a company it means that you also have certain rights and a ‘say’ in the company. You will be asked to vote on certain issues and even attend Annual General Meeting (AGMs).
Reasons for Investing In Shares
The reason for investing in shares is only to build wealth. There are two ways wealth can be created, the infamous line of buying low and selling high or earning income in the form of your dividend from the shareholding company.
Buying and Selling Shares
Shares increases when people value the shares in that company and offer the possibility of a higher price to buy them. It sounds simple, but there can’t be any guarantee that the share price increases while you still own them. The risk of investing in the sharemarket is to own shares from a company that suddenly shut down and then the shares of that company become automatically worthless.
A chart tracking the share price of The Macquarie Group on the Australian Stock Exchange. In 5 years it has gone from around $20 to $80! You can see down the bottom right corner that the price increase for this period is 291%.
Apart from making money through buying and selling shares, earning income through dividend is another source to make money from shares. The dividend is the profit made from a shareholding company to its shareholders.
Dividends are paid mostly in six months as an interim and final dividend, but the amount a company pays may vary from time to time.
Some companies sometimes offer what is called the dividend reinvestment plans whereby you can use the bonus you receive to reinvest into buying more shares from that company.
The price of shares drops the dividend amount slightly when the price goes ex-dividend. For you to own a dividend, you must have purchased the shares of that company before getting an ex-dividend date.
Sticking with the Macquarie Group, the table below shows key financial data with the yellow being the dividend. That means that in addition to the 291% share price increase share holders would have receive an additional 5% per year!
How to Buy and Sell Shares to Make Profit
Before investing in the shares of a company, there are some few questions to ask yourself like is this company financially stable? (Profitability, operating, solvency, liquidity), who is in charge of this establishment? , how much income does this company get? Is it overvalued? Who are its competitors?
When a company issues shares on the sharemarket for sale, it is known as float or IPO (initial public offering). A company might float to raise money or use that method to give existing investors an exit for their investment.
After this float then the shares becomes available on the sharemarket. If you wish to buy shares while on the floating market, then a broker would be needed to do this. All you need do is send a cheque and your application form to the company.
Sometimes you may not be given all the portion of floats you apply for or in some cases you might not get any shares at all. However, you should know that your funds can be tied up for a couple of months before it is refunded.
Buying Shares to make profit
The easiest way to buy shares is online through a platform called share dealing platform. This method is the cheapest method of buying shares; it allows you to buy shares from a different company listed on the stock exchange in various currency around the world.
There are different ways of buying share which is capital rising market, off market transfer and IPO (initial public offering).
Capital Rising Market: This involves a list of company that issues additional shares to their current shareholders or investors with much cash to raise funds. The price offered is mostly at a discount to the present value in the market to entice investors to take part in the raising of funds.
Off Market Transfer: An off-market transfer is a private sale which is done by a family member or when dealing with deceased estates. A broker is not required for this process.
IPO (Initial Public Offering): An IPO is when an enterprise is listed on a stock exchange market to raise funds by selling shares in the company to the public. When ace as the shares offered. It is up for buying immediately and hunted, or it remains stagnant due to low public interest.
Benefits of Investing In Shares
- Capital gains by owning some shares in a company with growth potential, investors have the opportunity to take advantage of capital gains as the assets grow in value over time. Investors get unlimited participation in the profits of the company. A company cannot give out all its profit made has income as this would be risky.
- Investing in shares is a good source of revenue as the dividend earned from this shares from the company.
- Shares trade are highly liquid means there can be turned into cash when they are sold at a higher rate. Unlike direct investments, shares are relatively easy to transfer owner between different people.
Risk of Investing Shares
Shares can be very volatile and can fall in price drastically.
Your lack of know might be considered as a risk when investing in shares.
When the price fluctuation some investors might feel a degree of stress from this and decide to pull out, which causes the company lack of fund to pay a dividend.
Here is a video on setting up a trading account. It looks at the process and goes through a bit of a run down on the process. This is for IG Markets. I dont have an affiliate with the company nor am I recommending their services, This is purely for education purposes.
Start the video around the 2.40 mark. It just starts to repeat the first bit from here