Shares in a company equate to an entitlement of ownership over the company you have invested in. A person who buys a portion of a company’s capital, becomes a shareholder in that company’s assets and as such is entitled to a share of the company’s profits.
Shares that are bought in a listed entity are able to be traded on the stock exchange they are quoted. This can be done for many reasons such as to make your investment liquid, to swap into another product or company, or to realise a capital gain on the sale of the share as the market price is higher than the price you paid for the product.
Research carried out by ASX and Russell Investments shows that over the long-term, shares achieve one of the highest rates of return out of all investment types.
However, there are risks that you need to bear in mind when investing – including the value of shares can decrease and the rate of return may not meet expectations.
There are many benefits to owning shares which make it an investment well worth adding to your investment portfolio. Listed are five advantages of investing in shares:
While equity markets have historically produced higher returns than cash or fixed income over the longer term, the risk of capital loss exists especially over the shorter term. You should be aware of the risks of investing and speak to a qualified financial adviser to determine if an investment in equities is suitable for you.
As markets are not always efficient, using an active manager may also help to manage risks and improve performance. A good manager can identify undervalued securities to invest in by carrying out their own research on sectors and companies, including face-to-face meetings with management to determine the intrinsic value of a company’s share price.