Investing in shares is one way to make your money work for you. If you want to start investing, there are a few things you need to know about the share market. The more you understand the market, the better you’ll become at managing your investments.
What is the share market?
The share market is a regulated marketplace in which shares in public companies are bought and sold. There are share markets all around the world, such as the New York Stock Exchange and the London Stock Exchange. In Australia, there is the Australian Securities Exchange (ASX) and Cboe Australia. The ASX has two main areas of operation: the ‘primary market’ which allows companies to raise money by issuing shares for sale, and the ‘secondary market’, where investors can trade shares.
What are shares?
A share is a portion of ownership of a company. The value of a share depends on the company’s earnings, its future growth potential, industry trends and the economic climate. You can sell your shares to other investors on the share market at any time. There are many public companies listed on the share market. Purchasing a combination of shares from different industries minimises your risk. Your share portfolio is the collection of shares that you own in multiple companies and across several industries. When you buy shares, you become a shareholder, which means you own a percentage of that asset, alongside other shareholders. There are certain benefits to being a shareholder.
What are the benefits of being a shareholder?
Shareholders can profit from a rising share price and can also derive an income from the profits made by the company. Shareholders have the right to vote on board resolutions and have input into how the asset is managed. They also have the right to attend the AGM of the company.
How to make money through shares:
Capital growth
You can make money if you sell your shares at a higher price than you paid for them. They can usually be bought and sold very quickly and easily. Normally, you can sell shares and then access the cash in a few days.
Dividends
If a company that you own shares in makes a profit, a portion of this profit may be divided amongst all shareholders as a dividend payment. This is paid at a fixed amount per share.
Rights issues
Some public companies make ‘rights issues’ that allow shareholders to buy shares in the company at a discounted rate without buying through brokers. This helps them to raise money to grow the business. If you decide not to take up such an offer, you may be able to sell the right to buy the discounted shares to another party.
Shareholder discounts or entitlements
Some public companies, often those operating in retail, hospitality, entertainment, or financial services, offer substantial discounts to shareholders to buy goods or services from the companies or their subsidiaries. Normally, you must own a minimum number of shares to be eligible for these offers.
