Benefits of Share Ownership
Suishare’s education programs will help people to become more knowledgeable about investing.
Share investing can be very rewarding and profitable. How you invest depends on;
– your personal outlook,
– your interests,
– the time you have available to follow companies you are investing in,
– your risk tolerance,
– your investing time horizon.
Owning shares is not for everyone. The share price can go down as well as up.
A share is a part ownership in a company. Owning shares in a company allows you to profit from the companies’ success, as a part owner. In case you are not sure what a share is:
Imagine dividing a business up into thousands of equally sized pieces, then selling or giving the pieces away. Shares are essentially units of ownership. If you buy or receive shares, you become a shareholder. This means you own a piece of the business and may be entitled to a share of any profits it makes. A part of the profits a company makes is paid to shareholders as dividends
As companies earn profits from their business, these profits are returned to their shareholders. There are a number of ways you can benefit from owning shares.
The company’s management may declare dividends either in-between a financial year (called interim dividends) or at the end of the financial year (called final dividends). However, it is not mandatory for the companies to pay dividends. The company can use the profits for alternative uses such as business expansion. The decision to pay or not to pay dividends is taken at the annual meeting by a majority vote of the shareholders. Blue-chip companies (large companies) are usually consistent dividend payers.
As the company expands and grows, it acquires more assets and makes more profit. As a result, the value of its business increases. This, in turn, drives up the value of the stock, meaning that when you sell, you will receive more money what you paid for it. This is known as capital gain and this is the main reason why people invest in stocks. They aim for capital appreciation.
A company may require more funds to expand its business and in such cases, the company can issue further shares to the public. However, before approaching the public, the existing shareholders will be given a chance to subscribe to more shares if they want. This is called a rights issue and is done in order to ensure that the existing shareholders maintain the same degree of control (and profits) in the company.
SHARES CAN BE PLEDGED
Shares are considered as assets and hence, banks accept shares as security for raising loans or mortgages. Should you have a financial emergency, shares can quickly be pledged to raise required funds.
Shares are highly liquid. They can be converted into cash in no time. With online trading, all it takes is the click of button to sell you holdings.
CAPITAL APPRECIATION OR DIVIDENDS?
The above mentioned income sources may not be present in every company you buy. For example- if you’re buying company that has a huge potential to grow, it may not pay its surplus as dividends. Instead, it will be used for further growth. In such cases, huge capital appreciation may happen. So depending upon your investment strategy, you’ll have to choose what you want. It’s always wise to go for capital appreciation rather than dividends.
Usually investing in a blue-chip is safer than investing in a small company, however there are no guarantees and share investment involves a range of risks. These include:
- Share price volatility
- Economic fluctuations
- Business competition
- Management misbehavior
On average the higher the expected risk, the higher the expected benefits, but also the higher the downsides, like completely losing your investment.
The risks of investing in shares are:
- Share prices for a company can fall dramatically, even to zero
- If the company goes bankrupt, shareholders are the last in line to be paid, so you may not get your money back
- The value of your shares will go up and down from month to month, and the dividend may vary
If you are still unsure, please think about increasing your knowledge and investing confidence by attending one of the courses SUISHARE will offer: “more information coming soon”