When you buy shares, you're buying a small part of a company. You can buy shares directly or own them through a managed fund that pools many investors’ money.
Shares are riskier than other types of investments such as bonds and cash investments. If you own shares, you’re not guaranteed a return or capital gain, but they potentially offer a higher return, particularly over the long term.
Share can be highly volatile but you can earn returns by dividends and capital gains. There are two ways you can make money:
Shares go up and down in value a lot. This is normal – shares are volatile. You can view the value of New Zealand listed shares on the NZX website.
Companies with shares listed on a licensed financial product market like the exchange run by NZX Limited have to comply with the rules of the exchange.
Only some types of share offers will have a Product Disclosure Statement (PDS). Share this! explains the difference between buying shares on primary and secondary markets and the different levels of disclosure that apply to these markets.
This is the process of publicly offering shares to investors and listing on the share market. An IPO (also called a float or listing) may involve the issue of new shares to raise more capital for the company or the sale of shares previously owned by other shareholders.
Unlisted shares aren’t on an exchange and there may not be an established market for their sales.
The company you’ve invested in could perform poorly or fail. The share price could stay weak for a long time if the company consistently disappoints investors. Dividends may also fall if profits fall, or the company decides to keep more of its profits to reinvest in the business.
This can happen when the company you’ve invested in offers to sell you new shares to raise money but you don’t take up the offer. It can also happen when the company raises capital using complex investments that can cause your initial investment to be sharply reduced if you don’t know what to do with them.
The fees charged will vary depending on the type of share buying service you choose. You will pay a minimum brokerage fee for each order placed and may have to pay a percentage fee for any amount over the minimum.
Invest for the long term
Holding shares for the long term enables you to smooth out price fluctuations. If you buy shares with money you’re going to need soon, you take the risk of being forced to sell at a low price.
Don't try to time the market
No one can predict with certainty how a share will perform. Trying to pick a good time to buy or sell involves some luck, so make sure you’re fully informed about what you’re buying or selling, and why.
You should aim for a mix of different shares to smooth out the ups and downs in value that typically happen. Diversifying doesn’t guarantee you won’t make any losses but done properly, it will help you manage your risk.
Keep up to date on your investment
The performance of your shares will change over time. The company annual report will help you stay up to date with the business you’re investing in.
Be wary of low-ball offers
A ‘low ball’ offer is an unsolicited offer to buy shares from you at significantly below the market price and/or where payment is spread over a long period of time.
‘Unsolicited’ means you don’t know the person making the offer and the offer is not part of an offer process such as share buyback from the company whose shares you hold or a takeover.