Your guide to BUYING SHARES

HOW YOU CAN GET A SLICE OF THE PIE

One in three Australians directly own shares, according to the ASX Investor Study 2017, and you can, too. But before you even start choosing shares, you need to understand how they work.

GET TO KNOW HOW SHARES WORK

Investing in shares can seem complex, and yes, there’s a whole lot of jargon that goes hand in hand with share markets. But the basics of shares are very straightforward.

When you invest in shares, you are buying a small slice of ownership in a company listed on the Australian Securities Exchange (ASX). The share market is broken into various sectors including energy, financial, utilities, consumer staples and healthcare.

As a shareholder you are a part owner of a very big business. It doesn’t matter whether the company is Telstra, Qantas, one of the mining giants like BHP or any one of the 2000 other companies listed on the ASX, as a shareholder you own part of the business

– and that’s pretty exciting.

As a part owner, you have the right to attend the company’s annual general meeting and have your say in how the business should be run. It’s an option, but most shareholders are happy to sit back and leave the daily grind to the board of directors.

The real appeal of shares lies in the opportunity to earn income without any personal effort. And unlike a rental property, once you’ve paid for shares, you won’t be asked to contribute extra cash to keep the business going. Even better, the returns on shares can be very lightly taxed.

HOW SHARES CAN MAKE MONEY

As a shareholder, you have the potential to earn two types of income: dividends and capital gains. They are quite different, and it’s worth understanding what’s involved with each.

Each year, when a company makes a profit (assuming it makes a profit), all or part of this money can be paid out to shareholders as ‘dividends’.

Unlike interest on a savings account, there are no guarantees about dividends. It is up to the board of directors to decide whether the company will pay a return to shareholders at all.

During the COVID-19 pandemic, for instance, a number of companies decided to hold onto their cash rather than pay a dividend. To be fair, these were exceptional circumstances, and depending on the company you invest in, you can normally expect to receive a dividend payment once or twice a year. How much you’ll receive will depend on how many shares you own.

This is an edited extract from Ditch the Debt and Get Rich, $29.99. Available to purchase where all good books are sold and online at aremediabooks. com.au.