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Five Reasons for Investing in Shares
1. Capital Growth
2. Dividends
3. Ease of sale and purchase
4. Diversify your investments
5. Brand Name Security
1. Capital growth
Over the longer term, shares can produce significant capital gains through increases in share prices. Some companies also issue free or bonus shares to their shareholders as another way of passing on company profits or increases in their net worth.
Many listed companies also make what are called 'rights issues', that give their existing shareholders the opportunities to buy more shares in the company at a discounted rate and without the need to buy through brokers, thereby saving on brokerage fees. Companies do this as a way of raising more capital for expansion, and it provides you with an opportunity to increase your holding in the company at a discounted price if you are confident of its potential. Even if you decide not to take up their offer, you can sell the right to buy the discounted shares to someone else.
2. Dividends
Companies pay much of their post-tax profits to their shareholders in the form of dividends. Since dividend imputation was introduced, the attractiveness of dividends issued by Australian companies earning their profits within Australia has increased. Some companies have dividend reinvestment plans, where they issue additional shares to their shareholders (often at a slight discount and without brokerage fees), rather than paying out dividends in cash.
3. Ease of buying and selling
Compared to other investments like property, shares are very portable. They can be bought and sold quickly, and the brokerage on the transactions is lower than for a property transaction. Unlike selling a property, you can sell part of your share parcels.
4. Diversifying your investments
In order to diversify your investment portfolio, you will probably have part of your money in the share market. You may buy shares directly or through managed funds.
5. Brand Name Security
There is a level of comfort for investors knowing they hold shares in companies they see advertising daily, or come across in their daily routine. Investors can tolerate share price fluctuations more readily, and therefore less likely to panic sell when they can 'see the business operating in the market place'.
