Investors can benefit from owning shares through receiving dividends or cashflow or through the increase in value of the share, known as capital growth. Money invested in purchasing company shares and trading it in the share market can give build wealth and even provide financial freedom. Just think of things that you can do with having a good investment in the share market. You could retire at 40 or 50, that’s 10-20 years early for your retirement age, and since you’ll be retiring early you can go on a long vacation and tour the world. You could also write your own autobiography or a potentially best-selling novel, settle your mortgage once and for all and so much more! Now that’s some share market basics that’s very interesting to ponder on! Before we get carried away with what could happen, you’ll need to understand how to invest and also understand the potential risks of the share market.
Shares are also a very liquid form of investment. It is relatively easy to purchase and to sell shares in the short term. You can purchase and sell the same shares even on the same day. Compare this to other types of asset classes, such as property, and you can see the shares are a very simple way to get in and out of investments.
Shares also provide flexibility. You can divide your capital between different classes of investments and different sectors of the market very easily.
What are the Risks involved in share market investing and trading?
There are a number of risks involved with investing in the share market, which is why understanding stock market is so important. You need to know what they are before putting your money on the line. Some unknowledgeable people often refer to investing in shares as betting or gambling, we don’t think so. Betting is a term used for wagering money at certain odds on the outcome of a market, often when doing so the person has no real knowledge of their bet. When we invest in shares we research each company first much like realestate investing on investing in businesses. If you just want to take a bet then you can read more about betting in Australia here.
Some of the risks include:
- Risk of Capital Loss – When the company where you own a share is not performing well, the value of your share may drop. It can drop a little or it can drop a whole lot! As a result your shares then become “unwanted” by other investors and you’ll be forced to sell it at the negotiated rate in favor of the buyer.
- Volatility Risk – Share values can rise and fall rapidly and can fluctuate many times over their life.
- Timing Risk – Share market cycles affect risk and particularly risky times are when a market or market sector is in sharp rise or sharp decline.
- Risk of Low Quality Advice – Where you decide to rely on the advice of others for your investing you would hope that the advice you receive is sound, however, there is a risk of poor quality advice which can impact upon your investment.
- Legislative Risk – Changing laws could also affect your investments.
- Currency Risk – Currency moves in the global market can also pose risk to your investment.
If you’re willing and ready to accept these risks, then you can go ahead and purchase shares in order to start your career as a sharemarket investor. Why share prices go up and down
There are many things that can impact upon the prices of shares.
- Economic growth and situation locally
- Local interest rates
- Commodity prices
- Investor confidence and sentiment
- Government policies
- Global economic factors
- Exchange rates