What is a share?
When you buy shares in a company, you are buying a part of that company. This means you share in the company's performance in the form of profits which can be given to you as dividends and/or capital growth through the value of your shares increasing.
The company you are investing in benefits by using your money and that of other investors to finance its business or its expansion, without having to borrow money.
Benefits of investing in shares
Outperforms other investments over the longer term.
Although past performance is no indication of future performance, history suggests that Australian shares have outperformed other types of investment over the longer term. To find out more you can read the Russell report which compares asset classes over the past 10 years.
Where companies have already paid tax on their profits, tax credits known as franking credits may be attached to the dividends the company pays to you. These franking credits can be used to offset tax payable by you on other income. In addition, shares held for more than 12 months qualify for a 50% discount on any capital gains tax payable. Find out more about tax.
Many people know the saying "don't put all your eggs in one basket". The Australian sharemarket helps you to do this by offering a wide choice of companies in which to invest. There are over 1700 companies listed on ASX. These companies are involved in a wide range of industries covering most sectors of the economy including financial services, industrials and healthcare. By investing in a range of companies you can spread your risk.
You can buy and sell shares quickly. You can sell shares and generally have access to your money in no more than three days. Other investments often take longer to sell and get your money back. This concept is known as liquidity. Remember some shares can be traded quicker than others due to their increased liquidity. (Liquid investments have the benefit of greater flexibility).
Control over your financial future
You can decide exactly how your money is invested, enabling you to have a lot of control over your finances. You can of course choose to share this responsibility with a stock broker who can advise you on what shares to buy and sell.
What does it cost?
Trading shares has become much cheaper in recent years as stock brokers have made use of new technology to provide a better service to you. Buying and selling shares can cost as little as $25 for a transaction-only service. You may need to pay more if you want advice and/or access to research on a company. Find out more about finding a stock broker.
What risks are there?
Although the sharemarket historically has outperformed other investments over the long term, the market can experience volatility in the short term. Individual stock prices can go down as well as up. It is important to monitor your shares' performance, and to regularly re-evaluate whether they continue to be a good investment for you. You can learn how to do this by completing an online class or by talking to a broker.