What are stocks and shares?
Buying shares gives you part ownership of a company, their value being determined by the company’s
performance and current economic confidence in domestic and world markets. People invest in shares because
there is a possibility that their value will increase (growth capital) and they may also be paid dividends
on their shares (see dividends below).
Investors should keep themselves well informed and the aim is always to buy low and sell high. Economic
climates, company performance and predictions can be researched but there are no guarantees and share
prices can rise and fall dramatically over night. During the recent turmoil in
world financial markets has resulted in dramatic falls in the values of shares
particularly in the baking sector. There are countless scenarios that could affect your share value so be sure to research and take
advice whenever necessary.
Investing in stocks and shares
People come to own shares in a variety of ways and many invested when the
government privatised national companies. Some companies give shares as
incentives or offer stock options to employees, many were awarded shares when
their building society gave up mutual status and became banks. There are also
some Individual Saving Accounts (ISA’s) that allow you to invest some or all of
your money in selected shares. For more information on ISA’s visit the
Money Jungle
Saving
& Personal Finance section.
Companies first sell stock to raise money for growth and expansion, people buy shares directly when
this happens or look for existing stock traded on the stock markets. Investors also invest indirectly
through managed schemes or pooled investments.
To find a stock broker, please refer to the Money Jungle
business directory and
click here for more information on pooled investments.
How will your shares make money?
1/ Share price
Share prices fluctuate and the aim of every investor is the old cliché of buy low and sell high.
Share prices are affected by world economies, markets and company performance. Generally, if a company
is performing well or is expected to do so its stock becomes more desirable to other investors and its
share value rises. On the other hand if a company is under performing or there are doubts about future
performance the share value will tend to fall. Most stock market investors tend to hold a range of shares
to manage the risk and balance gains and losses.
2/ Dividends
Some, although not all, companies reward their shareholders with a bonus payment from profits; this
is known as a ‘dividend’. The amount you receive depends on the number of shares you own and
dividends from shares are declared net of 10% tax as 'net dividends' (see below).
Categories of Stock
There are many of categories across many industry sectors and each carries different levels of risk
and potential reward. Some pay dividends while others don’t, allowing the company to reinvest in
growth and expansion. Growth stocks for example will pay little or no dividends because they need all
earnings to invest in business development and expansion. Growth stocks are issued by young companies
yet to achieve a solid track record but enjoying a faster rate of growth than their respective industries.
They carry more risk than Blue Chip stock for example but can offer higher potential appreciation. Blue
Chip companies require a long history of steady growth and are seen as very stable, they tend to pay small
but regular dividends and maintain a fairly steady price throughout market ups and downs.
There are too many scenarios to list here, so always be thorough, take advice and keep yourself informed.
Below is a list of useful information providers to take you directly to the information you require.
See also unlisted securities and AIM.
Continue to Stock Markets
Useful links:
Information on the UK economy, society and population can be found at http://www.statistics.gov.uk/
General information about financial services is available from the Financial Services Authority (FSA).
The FSA is an independent watchdog set up by the government to regulate
financial services and protect your rights.
The new FSA Money Made Clear website can be found at
www.moneymadeclear.fsa.gov.uk.
To find out more about dividends and tax implications visit
www.direct.gov.uk
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