By investing in shares in a public company listed on a stock exchange you get the right to share in the future income and value of that company. Your return can come in two ways:
- Dividends paid out of the profits made by the company.
- Capital gains made because you’re able at some time to sell your shares for more than you paid
Gains may reflect the fact that the company has grown or improved its performance or that the investment community see that it has improved future prospects.
Of course capital losses can also arise.
The price of shares in any individual public listed company can vary from day to day.
On any day some shares may go up in value and some down, depending on how investors view the prospects of each company. And all of the listed company shares in a particular country or industry may increase or decrease in price because of rises and falls in economic confidence or changes in the particular industry. There are a range of complex factors which influence share prices on a daily basis and no one can accurately predict what price listed shares will be in the future.We know from past experience that some companies will fail and some will flourish.
Overall the long-term trend is for the aggregate market value of listed companies to increase at a rate higher than inflation. Therefore by investing in a wide range of companies operating in a range of industries and countries, an investor has a good chance of making long-term gains. Remember that in assessing the return from shares you need to take into account of dividends received as well as capital gains.Because of the volatility of share prices (ie the fact that in the short term they may go up or down) it’s not wise to invest funds which you need in the short term, in shares. When you need your money you’ll generally be able to sell your shares, but the price at the time may be below your purchase price. Shares should be used as a long-term investment.
Many investors make their share investments by using expert fund managers.
Different fund managers have different skills and areas that they invest in. Moneyworks assists clients to build a portfolio of managed funds that have a diversified approach to investment.
You can invest directly in term deposits, bonds, shares and property or you can place your money in a managed fund and have full time specialists look after the investment decisions for you.
For some people making their own investment decisions and taking a more hands on approach gives them personal satisfaction and possibly some tax advantages. If you’re interested in direct investment talk to a stockbroker or specialist financial adviser.
Direct investment in shares in specific companies or selected rental properties should only be undertaken if you have detailed knowledge or are prepared to pay for specialist advice. Particularly in the case of property investment, you need to be willing to either spend the necessary time on administration and management, or to pay a property management company to do this for you.
People who want to acquire their own property investment generally have to rely more on their own knowledge and judgement. It’s therefore important to read publications and attend property investment seminars before making any decisions.
Issues you need to consider include the location and type of property (eg city or rural, residential, retail, warehouse, manufacturing, office or special purpose property such as motels or carparking buildings etc), financing and taxation arrangements, price, condition of property and maintenance requirements, lease terms, selection of sound tenants, record keeping etc. Owning a property is like operating a small business. Know the business, put time into the detail and you’ve a good chance of doing well. Rushing in without doing your homework can lead to disaster or at least a risk that you’ll lose some of your capital.
If you want to invest directly in shares or property remember the importance of duration, risk, diversification, returns and liquidity.
Managed fund Investments
In a managed fund your money is pooled with other investors, and a professional fund manager invests it in a variety of investments. Managed funds come in many forms – different funds invest in different types of assets for different objectives.
Some funds target all-out growth and invest more in high risk shares than others – they could rise dramatically or just as easily drop dramatically. These are funds for money that isn’t absolutely vital to your future plans. Other funds look for solid long term growth from a range of deposits, bonds, and shares – a better place for a lump sum intended for your retirement.
Financial advisers can advise you on managed funds that match your investment need.