What you need to know
before you start
A share is simply part ownership of a business.
A company can raise money to
finance its business by ‘going public.’ Going public means being listed
on a stock exchange and issuing shares to investors. By paying for the
shares, each investor buys part ownership of the company’s business and
becomes a shareholder in the company.
The money that a company raises in this way is called equity capital.
Unlike debt capital which is borrowed money, equity capital does not
need to be repaid as it represents continuous ownership of the company.
In return for investing in the company, shareholders can receive
dividends and other benefits.
Shares that have been issued to investors by a listed company can be
sold to other investors on the sharemarket. In this way, shareholders
can realise capital gains if the share price has risen – in other words,
make a profit by selling their shares for more than they paid for them.
Australian Stock Exchange (ASX) operates a sharemarket in Australia,
providing a transparent and regulated environment where companies and
investors can come together. Approximately 1700 Australian companies and
76 overseas companies are listed on ASX.* The market value of the shares
for companies listed on ASX is approximately $1,032 billion. This makes
Australia the eighth largest capital market in the world according to
the Morgan Stanley Capital Index, larger than the capital markets in
countries such as Hong Kong, Italy and Sweden.
Why do investors
One of the most famous
sayings about successful investing is ‘don’t put all your eggs in one
basket’. Markets in shares and property move in cycles. Some investors
fall into the trap of putting all their money into one asset class –
usually at its peak, and then watch as another asset class takes off
without them. It is better to diversify, spreading your risk, and enjoy
the upturns in markets because you are already in them, rather than
trying to ‘time the market’.
Better returns over the long-term
History demonstrates that shares, as a long-term investment
have the potential to provide better returns after tax than any other
major investment. However, past performance is no guarantee of future
returns. Although share values have risen over the long-term, this has
been punctuated with periods of short-term volatility, where prices can
go up or down very quickly. For this reason, it is usually important to
adopt a medium to long-term investment view of five years or more. The
graph opposite demonstrates the return delivered by the major investment
classes over a ten-year period.
The above is an excerpt from the pdf document below, which is
available for you to download - "Getting started in shares".
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