Shares – how they work and what role they play in building wealth…
You can invest in shares in quite a few ways, either directly, through managed funds, or through SMAs – that’s Seperately Managed Accounts – but it’s important to fully understand how shares work before even considering investing.
I want to go through a really basic overview of what shares are and what you can expect by investing in them.
Shares are just a small piece of a company. So if you buy a share then you actually own a little tiny part of that company.
You’d pick a share based on whether or not you thought that that is a good company, with good products or services, good management and good market demand for whatever it is that they do, and then you would buy that share and hope that your investment turns out to be a good one!
Your shares have two ways that they can provide a return.
The actual share price can change, so each share has it’s own price and that can go up or down in value, but shares also pay income – it’s called a dividend. It refers to the profit of the company, that is being distributed to the shareholders.
You can often choose to automatically reinvest the dividends and buy more shares in the company.
Therefore giving yourself more exposure to that company and the ability to earn more income and also benefit from the increasing capital base.
The toughest part of investing in shares is probably working out which ones to buy, and how much to invest.
If you’re not really into the whole research and watch the market daily thing, you’re probably better off using a managed fund or an SMA, which are both essentially diversified share portfolios, that are managed by a professional fund manager.
This limits your research down to selecting a fund manager you trust to pick the investments on your behalf. Even then, speaking with a qualified financial adviser can be a good option to help you make good investment decisions.