An introduction to the stock market: The basics of shares and making money

Julie Brownlee, Fsp Invest, 15 Apr. 2015

Tags: shares, stock market, investing in shares, buying shares, making money making money from shares, what are shares,



If you want to invest on the stock market, you buy shares.

So what exactly are shares? What does becoming a shareholder actually mean? And what are the benefits?

Read on to find out…



What is a share?


A share is a share or a part of a business.

If you buy shares on the Johannesburg Stock Exchange, you’re buying part of a listed company. The number of shares you buys dictates how much of the company you own.

You’re investing in a business and you become a part owner with all the other shareholders of the company.


How you benefit by buying shares


As a part owned in a listed company on the JSE, you benefit from the profitability of a company.

There are two main ways this happens…

Dividends
A profitable company may decide to pay out a portion of its profits to its shareholders in dividends. A company usually pays these out twice a year.

Capital growth
Capital growth is when the share price of a company rises. If a company is performing well and growing, the share price should reflect this over time.

On the other hand, if you invest in a company that doesn’t perform or disappoints, you may see the opposite of capital growth. You may see the share price falling in value.

In addition, a company struggling to grow its business may reduce or cut its dividend.


How you can make money buying shares


Let’s take a look at an example of how you can make money when you invest in shares…

You buy 1,000 shares in FabCo. The shares cost you 100c each. In other words, you invest R1,000 (1,000 x 100c) in FabCo.

After five years, the share price has risen to 175c. This means your initial investment is now worth R1,750 (1,000 x 175c).

In addition to this, over that period of time, you received a dividend of 10c annually for each of the shares you own. That’s a total of R500 (10c x 1,000 x 5).

This brings the total to R2,250. That’s a growth of 125% on your initial investment into FabCo.

So there you have it, the basics of shares and making money.

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