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. Before you invest in shares, make sure you study Share this!, our guide to choosing, buying, owning and selling shares.
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Summary of information you should read before investing in shares
When you buy shares, you're buying a small part of a company. This gives you the opportunity to make money in two ways:
Dividends which are payments made to shareholders as a way of sharing profits
Capital gains, which is the money you make if you sell your shares for a higher price than you paid.
You can buy shares directly or own them through a managed fund which pools many investors’ money.
Understanding the risks
The value of your shares might fall. The company you’ve invested in could also perform poorly, or fail.
Your shareholding may be reduced. 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 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.
There is a difference between listed and unlisted shares
If a company’s listed, it lists its shares on a licensed financial product market like the exchange run by NZX Limited. This means both the company and the sharebroker must comply with the rules of the exchange. Unlisted shares can be harder to sell because they’re not on an exchange and there may not be an established market for their sales.
There are costs associated with buying and selling shares
The fees charged will vary depending on the type of 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.
The information provided varies depending on the type of shares
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.
Most investors should aim for a mix of investments to smooth out the ups and downs in value that typically happen.
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 and 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.
Do your research
Make sure you understand the company you’re buying shares in and the key risks it faces. Keep up-to-date and keep track of your shares’ performance. See our additional resources: