The simplest definition of a share or stock is, “It’s a small unit of ownership of a company.” Buying shares or stocks is a form of investment.
Warren Buffet is know to be one of the richest people on the planet. How did he get there, you may ask. He has been buying and keeping shares from the age of 9.
Why do companies issue shares OR stocks?
The act of selling shares is a company’s way of raising its capital. The capital of a company is divided into little pieces, and these are what we call shares. One can own shares in different individual companies as well as different markets.
Shares will give you three or four times more growth than cash. However, they are riskier and that is why one needs to invest this money for long periods of time. There are two broad categories of shares, Preference shares and Ordinary Equity shares.
The Difference Between Preference and Ordinary Shares
When one invests in preference shares, they only earn the dividends which are fixed. A dividend is an income a shareholder earns from owning a share. Preference shares don’t give voting rights. Only equity shareholders are actual owners of the company.
With Ordinary Equity shares, the holder has the power to share the profits and earnings of the company and it comes with a vote. Preference shares are sold in the primary market whereas shares are sold in the secondary market.
How to buy and sell Shares OR Stocks
One must have a stockbroker who will trade shares, in listed companies, on the stock exchange. On the other hand, if you want to sell or buy shares in a private company, you will have to arrange your own transaction.
There are many ways to invest in shares. You can buy them directly through a stockbroker, via EFT, or through unit trusts, endowments or even retirement annuities. You invest your money for a minimum of five years or longer in an endowment. When you take out your matured money, it is tax-free.
A retirement annuity is a personal pension fund. A certain amount of money is put away every month and when matured, it will pay you either a lump sum, monthly pension or a combination of the two.