What is a share?
By holding a share in the company, an investor becomes a shareholder, meaning they are entitled to the relative monetary gains (or losses) of the company, as well as voting rights.
The income received from the ownership of shares comes through dividends. But of course, you earn money on your shares by eventually selling the share at a higher price point than what you bought it for! The main thing to take away here is that purchasing shares enables you to earn possible returns through price appreciation and dividends.
But not all companies have shares – only large-cap companies can issue shares for individual investors to trade on stock exchanges. Whilst shares can represent ownership in a company, an individual can also own shares in mutual funds, real estate.
KEY TAKEAWAYS
- A share represents an individual’s ownership of a company
- Only large-cap companies issues shares to individuals through stock exchanges - for example, Apple, Tesla, Microsoft etc.
- By holding a share in the company, an investor becomes what's known as a shareholder
- There are two ways to make money from shares: by selling the stock at a higher price and through dividends
- Shares can be bought in a matter of minutes through a trading app
What is an example of a share?
Let’s say you hold 10,000 shares in a company with 1 million shares. This means that you will own 1% of the company. It also means you’re entitled to 1% of the shared dividends each time a company distributes them. So if a company distributes £1 million in dividends, you’ll receive £10,000.
What are company shares?
Company shares represent an individuals’ stake in a private corporation, such as Apple or Tesla. Companies issue shares in order to generate revenue for the business, whilst giving investors back some of the residual profits in the form of dividends. If a company decides to not issue dividends, the individual investor will only generate profit if they sell their shares for a higher stock price later down the line.
Are shares a good investment?
Yes! Shares are at the very heart of investing – you can’t invest without them. We’re here to tell you that investing in the stock market is the main way to make the money you earn grow. That’s because owning shares means you earn dividends or an average annualised return of 7 to 10%.
But investing doesn’t come without risk – the market is volatile at times! But if you put in the right strategies to reduce the impact of volatility, such as diversification and dollar-cost averaging, then investing in shares will lead to stable returns (7 to 10% on average per year) in the long run.
How do I buy shares?
A common misconception is that investing is hard. In fact, buying shares couldn’t be more easy and can be done in a matter of minutes. The best way to do this is by choosing a trading app (there are many to choose from), researching different companies, and deciding which company you want to invest in and how much you want to invest. Once you click ‘buy’, that’s it! But whilst in theory it can take only minutes to buy shares, it is important you do your research beforehand.
Shares vs stocks
You’ll find that in the world of investing, the terms ‘stocks’ and ‘shares’ are often used interchangeably. That’s because they only have a very subtle difference between them. The term stocks should be used when discussing ownership of companies in general (e.g. owning 1%), whilst the term shares is used to describe ownership of a specific company (e.g. you own 15 shares).