Two reasons why you should buy shares

Julie Brownlee, Fsp Invest, 26 Feb. 2015

Tags: buy shares, buying shares, why buy shares, benefits of buying shares, investing, investing in shares, shares,

When you buy shares, you buy a share in a company. You become a part owner. The number of shares you buy determines how big a slice of the company you own.

So why should you consider buying shares?

Read on to find out…

What owning shares means

When you buy shares in a company, it means three main things for you…

  1. You can sell your shares onto other investors.
  2. You are entitled to a share of the company’s profits by way of a dividend.
  3. You can vote at shareholder meetings, like AGMs (annual general meetings).

But there are two main reasons why investors buy shares…

Two ways to make money from buying shares

Capital gain
When you buy shares, you hope that their value will rise over time. This means when you decide to sell your shares, you make a profit. This is capital gain.

Your aim is to buy shares at the lowest price you can and sell them for the highest price you can.

Dividend income
This is the second main reason why investors buy shares.

If the shares you own pay dividends, you can earn a steady source of income over the years.

A dividend is your slice of a company’s profits. A company pays out dividends on a per share basis, so the more shares you own, the more money you stand to make.

But, a company doesn’t have to pay dividends. A company may decide to invest all of its profits back into its business, if it makes any. Or if times get tough in the future, cut or stop paying its dividend altogether.

You’ll tend to find it’s older, more established companies that pay out dividends to their shareholders.

If a company does pay dividends, generally it will pay them out twice a year to its shareholders.

So there you have it, two reasons why you should buy shares.

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