Shares are a unit stake in a company that is available for sale on the stock market. These companies are known as publicly traded companies. The owners of the shares each own a percentage of that company, depending on how many shares were made available. Some companies only make available a certain percentage of the company in shares, therefore there is a limit to how much can be owned by investors.
You can buy either:
- New shares when a company first sells them to raise money to invest in its business.
- Existing shares which are traded on a stock market.
The price of shares can go up and down. The price of the shares is based on supply and demand, the more people who want shares, the higher the price, as people want less shares, the lower the price goes. When a company is doing well, its share price will go up as more people buy shares in the company, and therefore the value of your investment will increase. The value of shares is also affected by the overall level of confidence in the economy at home as well as the international economic climate.
There is a risk in losing your investment in shares, if confidence in the company is lost, or in extreme cases, if the company goes under. Investment in shares is done because as time goes by, the value of shares tends to increase, at least in the long term, and because publicly traded companies tend to pay a dividend, or share of their profits, to shareholders.
Capital Growth
As the price of your shares in a company go up, you will be in a position to sell your shares at a profit, therefore the investment has grown in value. This is known as capital growth, as your initial capital has grown in value. Any profits you make from capital growth will be subject to capital gains tax.
Dividends
Dividends are the means by which companies usually share their profits with their shareholders. A dividend is a share of the profits generated by the company during the previous period and set aside for dividend payments. The actual dividend paid per share will depend on the size of the total dividend and the number of shares in the company. Dividends are usually paid once or twice a year.
