Most large companies find the money they need for investment from shareholders - who give the company money as an investment and in return get ‘shares.’ The company may pay a dividend on those shares out of its profits each year to all shareholders.
WHAT DOES IT MEAN TO BE A SHAREHOLDER?
Shares can be held by individuals or by banks or insurance companies who invest money on behalf of their customers. The law protects shareholders from unfair or illegal practices and ensures that the companies report any significant information. Shareholders are also entitled to attend a company’s Annual General Meeting (AGM) and vote on directors’ pay and important decisions about the company’s future.
HOW DO SHARE PRICES WORK?
The individual share prices listed on the stock market can change from second to second, depending on how many people are buying and selling each share, and what the last buyer was prepared to pay. Shares can either rise or fall in value, sometimes quite considerably so within a short period of time, if investors all follow the same course of action.
WHAT RETURN CAN I EXPECT FROM SHARES?
There are two possible forms of return on your shares. The first is the dividend - which is part of a company’s profits divided up and distributed to shareholders. The total amount of the dividend is usually split into two parts - decided at the end of each half year. The second return you might hope to get from your shares is growth in the value of the shares themselves. If a company is successful, and its future is bright, the value of its shares ought to grow. This is called capital growth. Neither dividends or growth can be guaranteed.
HOW CAN I BUY SHARES?
At Redmayne Bentley you can give your instructions by telephone or in person and they will normally be carried out immediately with the share price confirmed to you. You will be asked to pay by debit card. There’s no minimum amount to invest in the stock market, but because you’ll have to pay your stockbroker a minimum commission, it becomes quite inefficient for amounts below £1,000. In addition to commission on the purchase and sale, you’ll also have to pay government Stamp Duty on purchases (usually 0.5% of the total value). You may choose to invest in one particular company you know about, or in an Investment Trust or Exchange Traded Fund both of which spread the risk of your investment more widely. Your stockbroker can hold your shares for you electronically, in fact around 95% of all UK share purchases are conducted electronically via a Nominee account.
HOW CAN I FIND OUT MORE?