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What we cover
When you invest in shares (sometimes referred to as equities) you become a part owner of the company whose shares you buy. If the company goes bust, you can easily lose all of your investment. If the company does well, you may share in the profits of the company and in any increase in the company's value.
Companies have different stages of development.
In the early years, all profits will usually be reinvested to help the company to grow. The aim is to get the share price to increase, so that your investment will grow in value.
Once the company has gone through the initial growth stage, it may decide to start distributing some of the profits to shareholders. It will normally do this by issuing dividends. Selection of appropriate shares can provide a good income stream.
Companies may stop and start dividend payments, and may increase or reduce them depending on what the directors think is best for the company and its shareholders. Part of the profits are often kept to help to develop the company further.
Investing directly in individual company shares is a very high-risk strategy. Even the mightiest of companies can fall from grace quite unexpectedly. For smaller investors, the costs of buying and selling individual company shares can be disproportionately high.
Investment exposure to company shares can be achieved by buying into pooled funds such as unit trust and OEICs. This helps to reduce risk and make share ownership more cost effective for smaller investors.
This type of investment is normally only suitable for longer-term investors.
For help and advice in planning your investment portfolio, contact us.