- Shares - what are they?
- Benefits of investing in shares
- Types of shares
- How to buy and sell shares
- Costs involved in trading shares?
- What risks are there?
When you buy shares in a company, you are buying a part of that company. This means you share in the company's performance in the form of profits which can be given to you as dividends and/or capital growth through the value of your shares increasing. Companies generally list on the stock exchange to raise capital for their company and to create a market in their shares. Companies you invest in benefit by using your money and that of other investors to finance their business or its expansion, without having to borrow money.
Shares are an important part of an investment strategy. Being good at investing in shares is about being informed, monitoring your share’s performance on a regular basis, keeping an eye on your goals and investment strategy and participating in ongoing education as you need it.
The Sharemarket provides one of the best opportunities to achieve your long-term goals. It’s straightforward, you don’t need a lot of money to get started, and shares give you flexibility and control. People invest in shares to make money – either through share price growth, or via income paid as dividends.
Potential to outperform other investments over the long-term
Although past performance is no indication of future performance, history suggests that Australian shares have outperformed other types of investment over the longer term. To find out more you can read the Russell report (PDF 904KB) which compares asset classes over the past 10 years.
Capital growth and Dividends
Capital growth occurs when the value of your investment increases. People invest in shares because they offer the possibility that their price will rise. Owning shares in a company with a rising share price is one way to achieve capital growth.
As a shareholder you are entitled to share in the company's profits or earnings. For many investors a key criteria in selecting shares, is whether the company pays dividends and the size of these. Companies pay dividends from their net earnings. Dividend payments vary from company to company and it is not compulsory for a company to pay a dividend. To learn more take the ASX course Risks and benefits of shares and/or view the short Audio Visual presentation on Dividends.
For Australian investors, dividends are often worth more than the cash payment they receive. This is because where companies have already paid tax on their profits, tax credits known as franking credits may be attached to the dividends the company pays to you. These franking credits can be used to offset tax payable by you on other income. In addition, shares held for more than 12 months qualify for a 50% discount on any capital gains tax payable.
To obtain further information or assistance, you should seek professional advice from your accountant or financial planner tailored to your specific investments. For more information please refer to the Australian Tax Office (ATO) website.
Many people know the saying "don't put all your eggs in one basket". The Australian sharemarket helps you to do this by offering a wide choice of companies in which to invest. There are over 2,100 companies listed on ASX. These companies are involved in a wide range of industries covering most sectors of the economy including financial services, industrials and healthcare. By investing in a range of companies you can spread your risk.
Ease of buying and selling
Investing in shares gives you flexibility. You can buy and sell shares quickly. You can sell shares and generally have access to your money in no more than three days. Other investments often take longer to sell and get your money back. This concept is known as liquidity. Remember some shares can be traded quicker than others du e to their increased liquidity. (Liquid investments have the benefit of greater flexibility).
Control over your financial future
You can decide exactly how your money is invested, enabling you to have a lot of control over your finances. You can of course choose to share this responsibility with a stock broker who can advise you on what shares to buy and sell.
There are different types of Shares available on ASX:
All shares listed on ASX can only be bought or sold through a broker. A stockbroker acts as your agent to buy or sell shares on your behalf, for which a fee is charged. A broker can also provide a range of services including the provision of advice on which shares to buy or sell. Most stockbroking firms require you to provide funds prior to accepting your first order to buy shares. More information on how to buy and sell shares.
Trading shares has become much cheaper in recent years as stock brokers have made use of new technology to provide a better service to you. Buying and selling shares can cost as little as $25 for a transaction-only service. You may need to pay more if you want advice and/or access to research on a company. Find out more using find a stock broker.
Shares present benefits as well as risks. History demonstrates that shares, as a long-term investment have the potential to provide better returns after tax than any other major investment. However, past performance is no guarantee of future returns. It is important to monitor your shares' performance, and to regularly re-evaluate whether they continue to be a good investment for you. You can learn how to do this by completing an online class or by talking to a broker.
The National Guarantee Fund is available to meet valid claims arising from dealings with stockbrokers in the circumstances set out in the Corporations Act 2001 (Cth) and the Corporations Regulations.
ASX has developed a range of free online courses which cover the essentials of investing in shares.