Stocks and Shares Basics

Learn the basics of stocks and shares

What are stocks and shares, how do they work and some of the things you may need or want to know about the basics of stocks and shares and investing in them.

What are Stocks and Shares

Stocks and Shares are essentially the same idea with slightly different meanings.

Stocks refer to the combined number of shares to which the ownership of a company is broken up into. Shares, of a stock, are the fractional ownership of a corporation. They represent the portion of the business which people can buy.

Buying shares within a company means you own part of that business. For example, the stock may be worth £100, and there are 100 shares, meaning each individual share is worth £1.

How do they work?

Companies decide they wish to go public and list themselves on the stock market. The stock market is essentially a list of public businesses, where companies are able to sell shares on a stock exchange. Companies start with an IPO (initial price offering) in which shares are sold to the general public for a certain price. The investors who bought those initial shares would now own part of that company.

Once the shares have been bought, they can be traded on the stock market. Investors are then able to buy and sell shares in that company from each other. Shares may increase or decrease in price, depending on a number of factors such as the supply and demand of the market and the performance of the company itself. Investors can therefore gain or lose money buying and selling shares on the stock market.

Why do companies allow you to buy shares?

Shares are typically sold within a company in order to raise money. Companies may be limited by their profits to what they can spend on future endeavours, so they will issue shares in order to gather funds. These funds help the business to expand and grow, thus rewarding shareholders with the hope of larger profits and therefore an increasing share price.

Why should you invest in stocks and shares?

You may wonder why you would put your money at risk for the sake of a corporation who doesn’t even know who you are. Investing in stocks and shares allows you to become the owner of that company. Becoming the owner of a company means you get to enjoy their potential success and earn from your investments. You can make money from buying shares either through:

  • Capital gains
  • Dividends

As companies perform well, the price of their shares may increase, meaning you are able to sell your shares for more than you bought them (Capital gains). Additionally, companies may wish to reward shareholders with some of their profits in the form of dividends.

Buying into stocks and shares can be highly rewarding. They have the potential to allow you to grow your wealth, reach your goals and work towards greater control over your financial situation. Additionally, stocks and shares typically outperform savings accounts and allow to make your money work. However, please remember that there is risk attached so investing in stocks and shares isn’t fool proof and you can lose your investment. It’s all about that risk/reward payoff.

Who can invest in stocks and shares?

Everyone! Anyone can begin investing in stocks and shares and it means you can be involved too. You don’t need to be a certain age, have a certain amount of money or even a certain amount of knowledge. You can begin investing in stocks and shares as soon as you are ready. Investing really is something everyone should aim to do, and you could be missing out on potential gains if you aren’t.

How much do you need to invest in stocks and shares

You can begin investing in stocks and shares with any amount. Whether you have a small or a large budget, you can become an owner of any company from around the world. A bigger budget obviously means the potential for greater rewards, but it also means more money is at risk.

How much you actually decide to invest is up to you. If you have a large amount of savings, then you may want to have that money working for you rather than sitting. It is also possible you just want to invest small amounts regularly to keep topping up your investments. The choice is yours! Just remember to consider fees and possible taxes involved and how they may affect your budget.

How to invest in stocks and shares

Entering the stock market and beginning to buy shares from companies is a fairly simple process. Assuming you are in the position to invest, with cash available, then you can get started. You will simply need to choose a broker and then the type of account you will want to invest in. These will give you the platform to buy and sell stocks and shares.

Once you have your broker and account, you may what to consider how you will go about your investing journey. Defining your goals, strategy and level of risk amongst other things will help create a clearer pathway to choosing your investments. All that is left is to choose the shares you wish to invest in.

·       How to choose which stocks and shares to invest in?

That is the ultimate question. Which stocks are the best ones to invest in? Truthfully, no one knows. Of course, some people will be able to predict certain stocks with much better accuracy than others. However, choosing stocks is tricky and for new investors it is even more difficult.

There are a number of ways to choose the shares you buy. It all depends on you. Some factors which you may when to consider when choosing stocks and shares:

  • Risk
  • Diversification
  • Investing Philosophy
  • Investing Strategy
  • Knowledge
  • Research

These may give you a general idea of what goes into finding the right stocks for you. They will help you to choose which is the right investment for you.

If you do decide you wish to begin investing in individual shares, then you will want to put in the time and effort to ensure you minimise your risk and make the best choice for you. There is no right or wrong answer.

You will need to research and understand which investments you want to make. There are hundreds of resources out there which can allow you to do so. Make sure you are always learning and getting as much information as you can. Then you will be able to make your own judgements and decide on the best stocks and shares for you to invest in.

What next?

You know some of the basics of stocks and shares. You understand what they are, how they work and so on. But you probably are wondering where to go next. Despite such a simple concept, there really is a lot to understand about investing in stocks and shares. Some options you may consider as part of your journey could be to:

  • Learn more about the stock market
  • Learn how to find and analyse shares
  • Read, read and read…
  • Practice investing
  • Begin investing for real

The possibilities are endless, but you should make sure you are continuously learning. Keep reading and take your time to get to know as much as you can. Understanding the basics of stocks and shares is one thing, actually investing in them is another. Make sure you are as prepared and ready as possible and then you can jump into the world of investing.

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