The share market is one of the most common ways to invest. Shares in a business represent a unit of ownership in that company (also called ‘equity’).
As a shareholder, you’re entitled to share in the company’s profits (typically paid to investors as dividends twice each year) and even vote on key issues affecting the company at the annual general meeting.
Shareholders can also make a profit through capital gains. If the business does well, its price on the stock market will climb and investors can sell their shares for more than they paid for them.
Pros of investing in shares
- Shares are generally highly ‘liquid’ – they can be easily converted to cash.
- The long-term trend in share markets is for prices to increase, meaning investors who hold their shares for long enough often enjoy capital gains.
- There is a huge range of shares to invest in across different industries, meaning investors can tailor their share portfolio based on individual needs.
Cons of investing in shares
- Even when the market goes up, individual companies can see their value drop.
- Share markets fluctuate through a cycle of booms and busts, and investors could find themselves facing a market downturn that reduces the value of their portfolio.
- If you invest too heavily into one industry, you could accidentally over-expose yourself to one part of the market and be heavily affected by specific market shocks.
How to invest in shares
Shares are bought and sold through exchanges like the ASX in Australia, and the S&P 500 in the US. To trade on these markets, you’ll need to talk to a stockbroker or use a digital investing platform.
Remember, you should always thoroughly research a company before buying its shares to make sure you understand the business model and are confident the investment will help you meet your goals. Never invest more than you can afford to lose, and if you’re in doubt about an investment opportunity, speak to a financial adviser first.