As a first-time investor, hearing terms like ‘stocks’, ‘shares’ and ‘equities’ might leave you scratching your head. Don’t worry, you’re not alone! Let’s clear up the confusion…
So, what are stocks and shares? 🤔
Imagine owning a piece of your favourite company, perhaps you’re a sausage roll enthusiast, so let’s say Greggs, for example. When you buy Greggs shares, you become a proud owner of a tiny portion of the company.
You do this in the hope that you’ll benefit from your shares going up in value if Greggs is successful in the future. Mmm, Greggs…
Some companies even pay dividends, usually every three to six months, which is a nice little cash reward they’ll give you in return for investing in them. 💰
Owning shares also gives you a voice! You can vote on company decisions at annual meetings and even buy more shares in any new issues the company might make to fund its growth. If you’re a newbie investor, mind, these things might not be of interest, unless you’re a big fan and a true believer in a company that issues shares. 💕
Stocks are shares are the same thing – you’re simply buying a stake in a company.
Buying and selling stocks and shares
Before the digital age, traders would shout and haggle on the trading floor of the London Stock Exchange to get the best deals! 💸
Trading stocks eventually moved to computer screens with the brokers buying or selling electronically or by telephone. This is still the case today, but for the customer, the whole process is online, making investing way more accessible and super easy to get started. ✅
Why buy shares?
Shares have historically been a great investment. Since 1850, they've given an average return of about 6% per year after inflation. To put it into perspective, if you had invested £100 in UK shares in 1899, it could have grown to around £2.7 million by 2018! That's a lot of zeroes! ⭕
While shares often see more ups and downs than cash or bonds, they generally provide higher returns over the long term. It's like planting a seed and watching it grow into a tree – with a few bumps along the way.
Bonds allow the investor to lend money and receive fixed rate of interest on it. At some point the company or the government pays back the loan and the investor gets back their initial investment, whereas shares are an actual stake in a company’s assets and profits.
If a company fails to grow its profits much, its shares will perform poorly. If the company gets it completely wrong and goes bust, however, shareholders may not even get their money back. 😲
Risk vs reward
Investing isn't without risks. Higher potential returns often come with higher risks. If the idea of losing some or all of your investment makes you uneasy, Dodl offers various ready-made portfolios by the experts at AJ
Bell, tailored to varying risk levels, so you can easily invest in a way that aligns with your goals.
But if you're up for the thrill and understand the risks involved, investing in shares can be rewarding. Just remember, patience is key. We’ve said it before and we’ll say it again: investing is a marathon, not a sprint. ️️🏃♂️
Mistakes happen
Even the pros get it wrong sometimes. Investing is as much about learning from mistakes as it is about making gains. Don't be too hard on yourself if things don't go as planned. It's all part of the journey. 🛣
If you’re looking to invest in individual companies, it's a good idea to look at a range of forecasts rather than relying on a single prediction. Websites like Reuters offer free consensus estimates, and many companies share analysts' forecasts on their investor pages.
So, ready to dive into the world of investing? Or perhaps you’re looking to learn a little more? Either way, by downloading the Dodl app, you’re covered. 👍
🔔 Always remember, the value of your investments can go down as well as up. Dodl doesn’t give advice, so if you’re unsure about investing, it’s always best to speak to a financial adviser.
Data from Barclays’ Equity Gilt Study.