Stocks and Shares – advantages and risks

The good thing about share dealing is it is a convenient ways to invest your money and you don't have to be a professional to succeed. Perhaps sensational news stories prevent people from researching the potential profits that can be made from stocks and shares, but in order to find success, you need to know what you're getting into.

The most basic information you need to know is that you are buying a small part of a company and depending on its performance, you could get paid a dividend.

The main reason for investing in the Stock Market is to maximize returns on your savings. In order to make money, you need to sell your shares for more than the buying price. You are now trading and you need to buy shares from other companies at a lower price in order to make more profit.

Stock markets saw a lot wiped off their values following the highs in 2007 but still over the long term, they have been the best form of investment. Even in times like these there are opportunities and good returns to be made.

An important consideration is that owning an ordinary share of a company usually entitles you to a share of the profits. Many companies will reward its shareholders with a dividend, an interim then a final dividend, usually paid twice a year. Companies may also offer perks or discounts. They use this to encouraging shareholders to use company’s products and retain their shares helping to maintain stability on the share price. On its own this is not a good reason to buy a particular stock but it can be an additional bonus.

Along with the advantages of possible huge profits there are the obvious risks and in the worst case scenario a company that you hold shares is declared bankrupt. As a shareholder you are unlikely to see any return of your investment.

You have decided to take a small gamble and try trading but where to start!

In theory you can buy shares direct from the companies that are issuing them but to do this you require good financial knowledge. As a rule an investor normally employs a specialist to trade for them. There are two types of Stock Brokers - discount brokers and full service brokers.

A discount broker provides a no-frills service, buying whatever shares you decide you want. A full service broker provides recommendations on what to invest in. This service naturally costs more.

There are also Fund Supermarkets these are convenient for investors as they provide access to an extensive range of funds and investment opportunities all in one place.

So you now have a basic overview of the advantages and disadvantages of trading stocks and shares, perhaps it would be safer to put your money into a savings account and let the interest grow but in today’s climate, even that is not foolproof.



date added: 19/02/2013

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