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Important Concepts You Need to Understand When Buying Shares

Updated on February 19, 2014

Investing in shares is one of the most effective ways to get higher return of income. It is important to note that the global market is not in good shape. With the recent recession and downturn that plague majority of the world’s economy, investing in shares may sound like a dangerous feat. However, many investors still thrive and flourish in the midst of these problems because they have the right tools and guides in making the best decision possible. It is imperative that you acquire as much information as possible when it comes to investment. While there are some risks that come with buying shares, you need to realize that these risks can be minimized if you know enough information surrounding every financial decision you make.

First of all, let us consider what shares really are. In the financial language, share refers to the portion of a certain company. It may either be a very small or big fraction of the overall value of the company. So if you buy a share of a company, in effect, you possess a certain value of that company. There are some instances that one particular share will be owned by different people. This type of share is known as fund. There some advantages that you can acquire from funds. It is less stressful for an individual since a fund manager will choose an individual investment for you. However, if you only settle in fund, you will not be able to influence company decisions, which is a privilege of a shareholder.

The stock market is the place where shares are being sold and bought. So as an investor, you might have heard about the stock market for quite some time now. The big and small companies have different subgroups in stock market. Most big companies perform their business transactions in the London Stock Exchange (LSE), while smaller companies perform their trade within Alternative Investments Market (AIM). There are certain advantages and disadvantages that you need to consider when you decide which market you will invest.

There are two main methods on how you can earn through buying shares. First of all, you earn through your shares when the company you work with grows in value. Thus, the share you invested in that company will also grow. The second method is through dividend scheme. This means that you will have a certain portion of the company’s overall income within a given time frame. Your dividend will rely upon the size of your share in the company. Most refutable companies prefer the dividend scheme. So you might find yourself doing the dividend scheme most of the time. However, most large companies don’t grow rapidly since these companies are already established. You need to realize as well that what you earn through dividend scheme is subject to taxes. On the other hand, smaller companies have higher growth rate and thus, giving your investment faster increase of value. Of course, you still need to weigh your decision as there are greater risks involved in buying shares from smaller companies.

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