Stocks and shares can suit a variety of investment strategies and they’re simple to invest in. The wide range of shares available means you can aim to grow your capital, earn regular income through dividends, or try to do both. You can buy and sell shares on popular UK markets such as the FTSE100, FTSE250, FTSE AIM 100 etc.
If you’re thinking about investing in stocks and shares, bear in mind that they do carry more risk than some other investments, such as cash savings, some bonds and even funds that invest in shares as their value depends on the performance of a single company. Therefore, there’s generally a greater chance of both bigger gains and bigger losses. However, by diversifying your portfolio, it can help protect it from the ups and downs of the market.
How stocks and shares work?
Investments in UK stocks and shares can fit some strategies and goals. Here’s how they work:
- When you buy a share, you gain part ownership of that company
- Holding shares gives you the right to vote on certain issues facing the business. The day-to-day conduct of the company’s business is carried on by a board of directors, which is voted in by the shareholders
- Any return you get from shares comes from share price growth or from dividends – payments out of the company’s profits. Returns from either profits or dividends aren’t guaranteed and you could get back less than you initially invested. You might get no dividends and the share price can fall
- There are two main kinds of share types – ordinary and preference. Most shares are ordinary shares. Preference shares may give holders priority when it comes to payment of a level of dividends and on liquidation of the company, however they don’t usually carry voting rights
- Preference shareholders usually receive fixed, regular dividend payments. However because the dividend is fixed, there is less potential for the share price to grow over the long term. Remember dividends aren’t guaranteed and share prices can fall as well as rise
- By holding shares from companies in different industries and regions, you can create a diversified portfolio and aim to spread your risk, which might help you achieve smoother returns.
If you’re unsure whether stocks and shares are right for you, you should seek independent financial advice. All investments can fall in value as well as rise and you could get back less than you initially invested.
(Source: Barclays, 2016)